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August 17, 2016

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Shenzhen-HK stock link approved

CHINA’S Cabinet approved a long-awaited initiative yesterday that will give foreign investors more access to Chinese stocks by linking stock exchanges in Hong Kong and the mainland city of Shenzhen.

Preparations to link Hong Kong and Shenzhen are “basically completed,” said a Cabinet statement. It gave no details of how the link would function but Xinhua news agency said it would be launched at a “proper time” this year once regulatory and technical preparations are complete.

Hong Kong is Chinese territory but its financial system is open to foreign investors, while mainland markets are largely sealed off from global capital flows.

The central government has long used Hong Kong, China’s special administrative region, as an offshore outpost for financial interaction with foreign companies and investors.

A similar measure linking Hong Kong with the mainland’s main exchange in Shanghai was launched in 2014. It allows investors from both cities to buy a limited range of stocks from the other side.

“Based on the success of the Shanghai-Hong Kong link, the launch of the Shenzhen-Hong Kong link marks a concrete step toward making Chinese capital markets more law-based, market-oriented and globalized,” Premier Li Keqiang said in the statement.

Li said the latest move will increase China’s international economic links while shoring up Hong Kong’s position as a financial center.

Until the launch of the Shanghai-Hong Kong link, only a few foreign institutions were allowed to buy mainland-traded shares in a closely regulated system.

The Shanghai-Hong Kong link was hugely popular with foreign investors, who bought the maximum number of shares allowed in its first few days.

The measure was less popular on the mainland, where investors have other vehicles for sending money abroad to invest.

Mainland stock prices soared beginning in late 2014 and then collapsed in mid-2015, triggering a multi-billion-dollar government share-buying effort to stabilize prices.

The Shenzhen market is smaller than Shanghai’s, and many of its listed shares are in smaller technology and consumer-oriented companies.

The city, which borders Hong Kong, led China’s export boom that began in the 1980s.


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