In November 2014, we witnessed a significant milestone in the global financial landscape with the official inauguration of the Stock Connect, also known as the Shanghai-Hong Kong Stock Connect, between the Chinese mainland and the Hong Kong Special Administrative Region. Being recognized as the world’s leading two-way capital market opening model, this pioneering initiative marked a pivotal moment in China’s capital-market opening-up.
Over the past decade, Stock Connect has proved to be a powerful tool in transforming and modernizing China’s capital markets. Through continuous exploration and innovation, Stock Connect has seen sustained volume growth in both northbound and southbound trading. Eligible investment products have gradually diversified. This mechanism has created a solid foundation for integrating and further developing the two markets, marking an active practice of high-level financial opening-up through institutional opening-up.
From the perspective of the mainland market, the capital market interconnection mechanism formed by the Stock Connect and other Connects has benefited the mainland in multiple ways. It has acted as a catalyst for the opening-up and internationalization of the mainland’s capital market, optimizing resource allocation and fostering financial innovation and development. It has also bolstered the financial system’s resilience and stability, supported the transformation of economic structures, and elevated the mainland’s position in the global financial market, thereby driving high-level financial opening-up.
The continuous enhancement and expansion of the capital market interconnection mechanism has provided consistent support for the high-quality development of the mainland economy. First, it has facilitated the opening-up of the mainland capital markets to international investors. Currently, eligible securities for trading through the Shanghai and the Shenzhen-Hong Kong Stock Connects account for more than 90 percent of the market capitalization of A-shares. The inflow of global capital has not only enhanced the liquidity and depth of the market but also helped improve the transparency and governance of the market.
Second, the accelerated cross-border capital flow due to the interconnection mechanism has helped optimize resource allocation and improve the efficiency of the capital market. Third, the implementation of the interconnection mechanism has propelled the innovation of financial products and services. For example, the subsequent launch of the Bond Connect has paved the way for the creation of new products such as green bonds and environmental, social and governance (ESG) investments. Furthermore, the interconnection mechanism has facilitated closer coordination and cooperation in financial regulation and policymaking between the mainland and Hong Kong, thereby further strengthening the foundation of economic stability.
From the perspective of the Hong Kong capital market, the capital market interconnection mechanism has greatly consolidated and enhanced Hong Kong’s position as an international financial center. It has bolstered market liquidity and depth, expanded the investor base, and improved the city’s financial services and innovation capabilities. Moreover, it has reinforced regulatory cooperation and market transparency, accelerated the internationalization process of the renminbi, and strengthened the connectivity of the global financial network. Through the capital market interconnection mechanism, Hong Kong can leverage its unique geographical advantages and financial expertise more effectively, continuing to play an integral role in the global economic system. For example, mainland investors can more conveniently participate in the Hong Kong market through southbound trading. From 2017 to 2023, the annual compound growth rate of southbound trading in the Stock Connect reached 15 percent. As the largest offshore renminbi center, the capital market interconnection mechanism has enhanced Hong Kong’s vital position in the process of renminbi internationalization. For instance, the launch of the Bond Connect has enabled international investors to access the mainland bond market through the Hong Kong market, further promoting the internationalization of yuan bonds and enhancing Hong Kong’s position as an international bond center.
Simultaneously, via the capital market interconnection mechanism, mainland and Hong Kong financial institutions can expand their global business more effectively, actively serve cross-border investment and financing needs, and compete in the international capital market. This is significant for cultivating first-class investment banks and investment institutions. For instance, China International Capital Corp Ltd (CICC), one of the most-international Chinese investment banks, which has been conducting international business in Hong Kong since 1997, has benefited greatly from and become a key player in the interconnection mechanism.
As China accelerates the process of high-level opening-up, institutional opening-up in the capital market continues to advance in depth. Recently, the new “Nine Guidelines for Capital Market”, issued by the State Council, proposed to “expand and optimize the cross-border connectivity mechanism of the capital market”. The interconnection between the mainland and Hong Kong markets will continue to move toward a more-profound and higher level. CICC will also continue to leverage its professional know-how to actively serve cross-border capital flows by making full use of the advantages provided by the innovative mechanism of interconnection to further contribute to the high-level opening-up of the capital market and the high-quality development of the two markets.
The author is chairman of China International Capital Corp Ltd.
The views do not necessarily reflect those of China Daily.
