China’s ongoing efforts to open its capital markets are set to gain momentum, with initiatives like the connect programs between the Chinese mainland and Hong Kong markets leading the way. Officials and industry experts emphasized that these developments will inject vitality into the markets and support the country’s high-quality economic growth.
New Reforms and Measures
During a forum held in Hong Kong to celebrate the 10th anniversary of the connectivity programs, China Securities Regulatory Commission (CSRC) Chairman Wu Qing announced that the commission is accelerating a new round of comprehensive reforms and opening-up efforts in the Chinese capital market. He indicated that more pragmatic measures would be introduced to facilitate cross-border investment and financing.
Wu emphasized the importance of adhering to market-based practices and the rule of law to create a more favorable environment for international investors looking to engage with the Chinese market.
Enhancements to Connectivity Programs
CSRC Vice-Chairman Li Ming highlighted plans to optimize the connectivity programs between the Chinese mainland and Hong Kong. This includes expanding the range of investable targets within the stock connect mechanism that links the Shanghai, Shenzhen, and Hong Kong bourses.
The stock connect programs have already proven effective, significantly improving market liquidity, buoying trading volumes, and enhancing the appeal of the A-share market. Notably, the inclusion of the A-share market in major international indexes like MSCI has attracted substantial overseas long-term capital.
As of the end of September, foreign institutions and individuals held 3.13 trillion yuan (approximately $430 billion) in Chinese onshore stocks, marking a significant milestone as it was the first time this figure exceeded the 3-trillion-yuan level since October 2023.
Record Trading Volumes
Bonnie Y Chan, CEO of Hong Kong Exchanges and Clearing Ltd, reported that nearly 77% of participating foreign investors accessed A shares through the stock connect mechanism. In October, trading values for both the southbound and northbound legs of the stock connect program reached record highs, with HK$280 billion ($36 billion) and 510 billion yuan, respectively. This demonstrates the reliability and effectiveness of the stock connect mechanism.
Strengthening Hong Kong’s Market Position
The connectivity mechanism has also enhanced Hong Kong’s attractiveness as a listing venue for high-quality Chinese mainland companies and foreign enterprises. As of this past Sunday, 40 Chinese mainland companies had gone public on the Hong Kong stock exchange in 2024, surpassing the 34 IPOs recorded during the same period in 2023.
To further support these initiatives, the CSRC plans to launch more cross-border exchange-traded fund products and expand the connect programs for depositary receipts. Efforts will also be made to optimize the mutual recognition of funds between the Chinese mainland and Hong Kong.
Encouraging Cross-Border Investments
Li stated that the CSRC would promote foreign institutions to increase industry-related investments in China while encouraging qualified domestic institutions to pursue outbound investments. Additionally, there will be a focus on refining the coordination mechanism for supervising overseas listings to support technological innovation and the development of new productive forces.
As China continues its orderly opening-up process, experts like Tan Yueheng, chairman of BOCOM International Holdings Co Ltd, suggested that the connectivity mechanism should expand to include a wider range of product categories, participants, derivatives trading, and green finance initiatives.
Conclusion
China’s capital market opening-up, exemplified by the successful connect programs with Hong Kong, is poised for further advancements. With new reforms, increased trading volumes, and a focus on cross-border investments, the Chinese capital market is expected to become even more integrated and attractive to international investors, ultimately contributing to the country’s economic growth and development.
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