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China Revives Neglected Plan to Link the Hong Kong and Shanghai Stock Markets

Stocks in this article: UBS GS

BEIJING (TheStreet) -- If China makes good on its latest market liberalization plan, Hong Kong investors next fall will be trading Shanghai-listed stock and vice versa -- more than seven years after regulators introduced a similar plan and promptly shelved it.

That's right: seven years. The so-called "through train" scheme for allowing and then streamlining cross-border stock trades announced Thursday in Beijing has been gathering dust on a government shelf since 2007.

And more dust will gather. Officials still "need six months of preparation time" before a formal launch, according to the China Securities Regulatory Commission, which announced the plan jointly with the Hong Kong Securities and Futures Commission.

Thus the program, dubbed Shanghai-Hong Kong Stock Connect, will probably start in October, although officials have not set a firm timetable.

Hong Kong's Hang Seng Index (^HSI) closed at 28,186.96 on Thursday, up 1.5% for the day. The Shanghai SSE Index (000001:Shanghai) closed at 2,134.30, up 1.4% for the day. 

The China Securities Regulatory Commission called the plan a "pilot" project to let mainland investors use their yuan currency to trade shares on the Hong Kong Stock Exchange, and to allow non-Chinese investors with Hong Kong brokers to trade on the Shanghai Stock Exchange. The scheme was first proposed in August 2007 and dropped the following month.

Back then, the government said regulators needed more time to write guidelines for controlling mainland investors' access to overseas markets, including Hong Kong. Since then, Chinese have been allowed to access foreign stock markets only through specially licensed funds.

Financial regulators at agencies such as CSRC, the China Banking Regulatory Commission and the People's Bank of China are famous for moving slowly. Market reforms in areas such as interest rate liberalization and foreign exchange rate controls, for example, started years ago and are still evolving.

But the Hong Kong/Shanghai market-access "through train" -- an expression coined in 2007 and still used today -- has been particularly slow in coming.

The CSRC announcement coincided with a speech by Prime Minister Li Keqiang at an economics forum on southern China's Hainan Island, where he promised to ease barriers separating mainland and Hong Kong capital markets.

It also followed a scoop last week by the 21st Century Business Herald, a mainland newspaper, that said the long-awaited through train's arrival was imminent.

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