Shanghai-London Stock Connect Not to Become a High-Rise on a Beach, CSRC Says
Xu Wei
/SOURCE : Yicai
Shanghai-London Stock Connect Not to Become a High-Rise on a Beach, CSRC Says

(Yicai Global) May 29 -- China Securities Regulatory Commission remains vigilant on ensuring stability amid capital outflows amid its plan to launch the first product linked to the Shanghai-London Stock Connect this year, which would bring Chinese mainland-listed shares into foreigners' direct reach. 

The increase in the inflow of foreign capital assets will become a new norm in the coming months, said Fang Xinghai, vice chairman of the CSRC, adding that the key to maintaining financial stability is to keep the market steady, while ensuring that all kinds of financial assets, including stocks, securities, loans, and derivatives, will not turn into price bubbles.

A small incident is likely to destroy a high-rise built on the beach, said Fang, adding that in the premise that the financial market is stable, temporary fluctuations of foreign assets will not cause continuous effects.

The London-Shanghai Stock Connect will allow companies from China to sell global depository receipts in the UK, and enable London-traded firms to list similar securities in Shanghai. China unveiled plans for a feasibility study into the tie-up in 2015, when then Chancellor of the Exchequer George Osborne was visiting the eastern city.

Currently, foreigners can access Chinese mainland shares only through the Shanghai-Hong Kong Stock Connect scheme launched in 2014, but the scheme includes daily quotas. 

Confronted with open circumstances, China must enhance the ability to pre-predict significant international economic and financial risks and deepen the extent of cross-border supervision and cooperation, said Fang, adding that Shanghai and Hong Kong bourses signed a memorandum to tighten supervision on cross-border derivates.

The Shanghai-London scheme launch has been delayed by two particular factors that arose in the study more than two years ago. First, with an eight hour time difference, the London Stock Exchange opens when the Shanghai bourse closes, causing a question about which stock prices should be used for transactions. Secondly, European bourses use a settlement period that is 24 hours shorter than China's A-share market, which requires transactions to be handled during the same day.

Editor: Emmi Laine

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Keywords: Fang Xinghai , London , CDRs , London-Shanghai Stock Connect , A-Share Market , Financial Reform , Shanghai Stock Exchange , London Stock Exchange , CSRC