中文
By Matteo Giovannini
November 17, 2024, marks the 10th anniversary of the Shanghai-Hong Kong Stock Connect, a pioneering financial initiative that reshaped how global investors interact with China's markets. Its launch in 2014 was a bold step toward integrating the mainland's financial markets with the global system. This milestone provides a moment to reflect on the motivations behind the program, its significance in the broader context of China's economic reforms, and the remarkable achievements it has delivered over the past decade.
Stock Connect emerged as a response to two critical imperatives. First, China sought to deepen the integration of its capital markets with the global financial ecosystem. By 2014, China had become the world's second-largest economy, but its financial markets remained relatively isolated. The introduction of Stock Connect provided a framework to open the mainland's equity markets to international investors while maintaining control over capital flows. Second, Hong Kong faced growing competition as a global financial hub. Stock Connect reinforced its role as the primary bridge between China and the world, reaffirming its strategic value in the face of shifting global dynamics.
The program's structure was innovative. It allowed international investors to trade eligible A-shares listed on the Shanghai Stock Exchange via the Hong Kong Stock Exchange, and vice versa for mainland investors trading in Hong Kong-listed shares. This was achieved without requiring investors to establish accounts in the respective markets, simplifying access while retaining regulatory oversight. The program's quotas and daily limits were carefully calibrated to balance market openness with systemic stability, a hallmark of China's measured approach to financial reform.
The achievements of the Shanghai-Hong Kong Stock Connect over the past decade have been profound. It has transformed the way international investors perceive and interact with China's equity markets. Before its launch, access to A-shares was restricted under the Qualified Foreign Institutional Investor (QFII) scheme, which involved cumbersome approval processes and limited quotas. Stock Connect simplified this process, opening a direct channel for global investors. Its impact was swift and significant, contributing to the inclusion of A-shares in major global indices such as MSCI and FTSE Russell. This development, in turn, attracted billions of dollars in passive inflows and firmly established China's presence in global portfolios.
For Hong Kong, Stock Connect has been a strategic win. As the conduit for foreign investment into China, the initiative has bolstered Hong Kong's position as a key financial gateway. It has strengthened its financial ecosystem, deepened its equity market, and enhanced its global appeal as a capital-raising platform. Moreover, the initiative has fostered closer ties between the regulatory frameworks of Hong Kong and Chinese mainland, demonstrating the potential for collaboration in areas such as market oversight and investor protection.
Beyond its technical achievements, Stock Connect has been a catalyst for broader financial reform in China. The program has driven improvements in corporate governance, transparency, and investor protection in mainland markets. By exposing Chinese companies to international scrutiny and standards, it has encouraged them to adopt practices aligned with global norms. The success of Stock Connect has also paved the way for similar programs, such as the Shenzhen-Hong Kong Stock Connect and Bond Connect, each expanding the horizons of cross-border investment.
However, the journey has not been without challenges. Stock Connect operates within a complex geopolitical landscape, where tensions and uncertainties can impact investor sentiment. Regulatory alignment between the mainland and Hong Kong, while productive, requires constant dialogue and adaptation to keep pace with evolving market conditions.
As we celebrate the 10th anniversary of the Shanghai-Hong Kong Stock Connect, it is essential to consider its future potential. The program represents an evolving bridge between China's markets and the world, and there are numerous opportunities for expansion and innovation. Deepening the program to include new asset classes, such as derivatives and exchange-traded funds, would broaden its appeal to a wider range of investors. Incorporating green finance products into the Stock Connect framework could align with global sustainability goals and reinforce China's commitment to carbon neutrality. Leveraging advancements in financial technology, including blockchain and digital currencies, could enhance trading efficiency and transparency while attracting a new generation of tech-savvy investors.
Stock Connect also holds strategic importance in an era of increasing regional and global competition. As China continues to promote initiatives such as the Greater Bay Area and the Belt and Road Initiative, the Stock Connect model could be replicated to link with other regional financial hubs. Such developments would not only strengthen China's role in the global financial system but also create a more interconnected and resilient market network.
Looking back on its decade-long journey, the Shanghai-Hong Kong Stock Connect stands as a testament to the power of financial innovation and collaboration. It has transformed the way global investors engage with China's markets and has positioned Hong Kong as an indispensable partner in China's financial modernization. Its success reflects the effectiveness of China's phased approach to reform, which balances openness with stability, and demonstrates the potential for mutual benefit in a connected global economy.
As Stock Connect enters its second decade, it will continue to evolve, responding to new challenges and opportunities in an increasingly complex world. Its enduring legacy lies in its ability to bridge gaps between markets, investors, and regulatory frameworks while fostering trust and collaboration. The Shanghai-Hong Kong Stock Connect is not merely a financial program but a symbol of integration, resilience, and shared prosperity, deserving recognition as a cornerstone of modern financial history.
Matteo Giovannini, a special commentator on current affairs for CGTN, is a finance professional at the Industrial and Commercial Bank of China, a Non-Resident Associate Fellow at the Center for China and Globalization (CCG) and a member of the Global Young Leaders Dialogue.
