China's State Council has approved a plan to connect the Shenzhen and Hong Kong stock exchanges, Premier Li Keqiang said Tuesday. Preparation for the launch of the Shenzhen-HK Stock Connect is generally in place, Li said at a State Council executive meeting.
A similar link between the Shanghai and Hong Kong bourses was launched in November 2014. It allows investors on the mainland and those in Hong Kong to trade selected stocks on each other's exchanges. "The roll-out of the Shenzhen-HK Stock Connect after the one between Shanghai and Hong Kong marks another concrete step for China's capital market in becoming more law-based, market-oriented and global. It will generate many positive outcomes," Li said.
The Shenzhen-HK Stock Connect will help investors share more of the dividends of economic growth on the Chinese mainland and in Hong Kong and promote closer partnership between the two markets while shoring up Hong Kong's role as an international financial center, Li added.
The scheme will be launched at a proper time this year after rules and technological preparations are complete, China's securities watchdog said Friday. Opening of the economy is a key feature of modern China, and the opening of capital markets and other financial markets has played an important role in boosting the Chinese financial sector's international competitiveness and ability to serve the real economy, Li said.
The China Securities Regulatory Commission (CSRC) said Tuesday in a statement that it signed a joint announcement with the Hong Kong Securities and Futures Commission on approving the establishment of the Shenzhen-HK Stock Connect mechanism.
The announcement said the formal launch will only take place after full preparations for trading and clearing rules and systems, regulatory approvals, operational and technical systems, regulatory and enforcement cooperation, as well as investor education. "It should take approximately four months from the date of this joint announcement to complete the above-mentioned preparations," the document said.
A separate announcement will be made about the formal launch date, it said. There will be no aggregate quota under the Shenzhen-HK Stock Connect, and the aggregate quota under the Shanghai-Hong Kong Stock Connect will also be abolished starting Tuesday.
The daily quota under the mechanism will be the same as that under the Shanghai-HK mechanism, or 13 billion yuan (1.96 billion U.S. dollars) for northbound investment and 10.5 billion yuan for trading Hong Kong-listed shares. The quota may be adjusted by the parties in light of actual operational performance.
For trading Shenzhen-listed shares, eligible shares include any constituent stocks of the Shenzhen Component Index and Shenzhen Small/Mid Cap Innovation Index with a market value of 6 billion yuan or above, as well as Shenzhen-listed companies with both A and H shares.
For investment in Hong Kong, the scope of eligible shares will be the constituent stocks of the Hang Seng Composite LargeCap Index and Hang Seng Composite MidCap Index, some constituent stocks of the Hang Seng Composite SmallCap Index, and all shares of HK-listed companies with both A and H shares.
The Shenzhen-HK mechanism is conducive to promoting opening up and reform of the mainland capital market, CSRC spokesman Zhang Xiaojun said. Zhang added that the mechanism can meet diversified demand from investors for cross-border investment and risk management and attract more long-term capital into the A share market.
Wang Jianhui, an expert with Beijing-based Capital Securities, also said the new mechanism will be a useful supplement to the Shanghai-HK link program in promoting the mainland capital market's opening up.
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