The first, and currently the only market that has some form of connect with China is the Hong Kong market, created through the Shanghai-Hong Kong Stock Connect scheme launched in November 2014. If London Stock Exchange succeeds in establishing a link with Shanghai Stock Exchange, then London will become the first Western market to establish such a connect.
Osborne expressed his wishes to develop plans to link the British and Chinese stock markets on a visit to China this week, although very few details were released.
Xavier Rolet, CEO of the London Stock Exchange, who is a part of Osborne's China delegation, said in a statement that his team will work to take proposals from the UK-China Economic Financial Dialogue forward.
"Having worked in China for over ten years, we will continue to engage closely with our partners and stakeholders in China and the UK," Rolet said in the statement, without mentioning any specific details of the Shanghai London connect.
Innes-Ker says the Shanghai-Hong Kong Stock Connect has already demonstrated the benefit of such a plan over other ways of allowing foreign investment into China, such as the QFII (Qualified Foreign Institutional Investor) scheme and the RQFII (Renminbi Qualified Foreign Institutional Investor) scheme.
The QFII and RQFII schemes allow certain qualified international investors to invest in China's stock and bond market marks, up to a certain quota that is allocated to a particular jurisdiction. For example, London has a RQFII quota of 80billionyuan.
Prior to the Shanghai-Hong Kong Stock Connect's establishment, schemes like QFII and RQFII were the only ways for Western investors to gain from China's growth opportunities, but these opportunities are restricted because they are open only to certain institutional investors and the available investments are limited.
The Shanghai-Hong Kong Stock Connect does not allow complete free trading either. Only a selection of mainland listed stocks are available for trading in Hong Kong, and there is also a daily quota of how much trade can be conducted, meaning it does not accommodate trade volumes above the set limit. Such a limit will affect the potential opportunity for international investors.
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