Hong Kong-Shanghai Connect: Shanghai market opens its doors to foreign investors

The Hong Kong-Shanghai Connect, a trading scheme opening Shanghai's stockmarket to foreign investors, launched this week. Most foreign investors can now access Shanghai directly for the first time, while mainland Chinese have a new route to international markets via Hong Kong.

Every day, up to $2.1bn dollars may flow into China, while slightly less can go south. On the programme's first day, international investors used up their Shanghai quota by lunchtime. Mainland buyers filled just a fifth of theirs all day.

What the commentators said

The Connect scheme kicked off with confetti and a ceremonial gong. But "the party didn't last long", said Alex Frangos in The Wall Street Journal.

Try 6 free issues of MoneyWeek today

Get unparalleled financial insight, analysis and expert opinion you can profit from.

Start your trial

Sign up for MoneyWeek’s free twice-daily newsletter.

Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.

Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.

Sign up

Global investors duly snapped up Shanghai shares that had previously been "walled off" from them, notably SAIC Motor, China's top car maker, and liquor giant Kweichow Moutai. Yet mainland inventors "seemed in no rush" to get their hands on shares in Hong Kong.

Perhaps that's not surprising: anyone rich enough to qualify for the programme's $81,550 minimum threshold "may already have found a way to get their money past China's capital controls into a Hong Kong brokerage account".

The lukewarm start shouldn't obscure the importance of the scheme, said the FT. Among other aims, the gradual opening of China's financial markets is intended to help promote the acceptance of the renminbi as a global currency. A key obstacle to this so far has been the "paltry investment opportunities" open to those who hold redbacks'.

Last year, international investors had renminbi assets worth just $250bn to choose from, compared to $55trn of assets denominated in dollars. An expanding renminbi market will make it easier to start reducing China's reliance on dollar-denominated Treasuries.

"Washington must start preparing for the day when it no longer has a captive buyer for its bonds across the Pacific."