Ten Years of Capital Market Connectivity: A Milestone in China's Financial Opening
China's capital market has achieved a decade of groundbreaking progress with the 10th anniversary of the Stock Connect program linking the Chinese mainland and Hong Kong. Celebrations during a high-profile forum in Hong Kong underscored the initiative's success in facilitating cross-border investment, improving market liquidity, and contributing to China's high-quality economic development.
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Advancing Financial Connectivity: From Innovation to Integration
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The Stock Connect mechanism, launched in 2014 with the Shanghai-Hong Kong Stock Connect and later expanded to include Shenzhen, marked a pioneering step in China's financial opening. Over the years, the program has continually evolved to include a broader range of investment targets, such as biotech firms and dual-class share companies, and has removed restrictions on daily trading quotas. These enhancements have not only improved investor accessibility but also strengthened cross-border trading activity.
In October 2024, trading volumes under the Stock Connect program surged to record highs, with northbound flows reaching RMB 510 billion (approximately USD 70 billion) and southbound flows totaling HKD 280 billion (approximately USD 36 billion). This surge underscores the mechanism's increasing reliability and appeal to global investors. According to Bonnie Y. Chan, CEO of Hong Kong Exchanges and Clearing Ltd. (HKEX), nearly 77% of foreign institutional investors accessing A-shares have done so via Stock Connect.
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A Global Gateway for Investment
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The success of Stock Connect has been instrumental in integrating China's A-share market into global financial indices such as MSCI and FTSE Russell. By the end of September 2024, foreign institutions and individuals held RMB 3.13 trillion (USD 430 billion) in onshore Chinese stocks—a record milestone that reflects growing international confidence in China's markets.
The program has also strengthened Hong Kong's role as an international financial hub. As of November 2024, 40 mainland Chinese companies had listed on the Hong Kong Stock Exchange, surpassing the 34 listings during the same period in 2023. High-profile IPOs, such as those of SF Holdings and Midea Group, illustrate the expanding role of Hong Kong as a launchpad for Chinese firms aiming to access global capital.
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Strategic Initiatives for Deeper Market Reform
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Wu Qing, Chairman of the China Securities Regulatory Commission (CSRC), emphasized at the forum that further reforms and opening measures are underway to bolster China's capital markets. Initiatives include expanding the Stock Connect mechanism to encompass new financial products such as cross-border ETFs, REITs, and green finance instruments. Enhanced mutual recognition of funds between the mainland and Hong Kong is also expected to streamline cross-border investment flows.
Vice-Chairman Li Ming highlighted the importance of institutional collaboration and regulatory coordination in supporting technological innovation and fostering a vibrant investment ecosystem. Recent regulatory adjustments, such as increasing daily quotas and optimizing settlement mechanisms, signal a continued commitment to aligning with international standards while catering to domestic market needs.
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Looking Forward: A Shared Vision for Growth
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The next phase of China's financial opening seeks to align with global practices while supporting domestic economic goals. According to Tan Yueheng, Chairman of BOCOM International, the inclusion of derivative products and expanded green finance initiatives will further deepen integration between the mainland and global markets.
Hong Kong's Acting Chief Executive, Eric Chan, reiterated the region's role in aligning its financial expertise with China's broader development agenda. By promoting innovation within the Stock Connect mechanism and strengthening regulatory cooperation, Hong Kong aims to solidify its position as a linchpin of China's international financial strategy.
As China celebrates a decade of successful financial connectivity, the journey ahead promises continued growth, innovation, and collaboration. With a steadfast commitment to openness and reform, China's capital markets stand poised to offer global investors unparalleled opportunities while driving the nation's economic transformation.
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