A shot in the arm for financial market

The Shanghai-Hong Kong Stock Connect, which formally opened on Monday, is not only a giant step toward opening the Chinese mainland's capital account and financial market, but also a breakthrough in its efforts to open up further to the outside world.

Under such a program, investors in Shanghai and Hong Kong had been allowed to trade and settle shares listed on each other's markets through the exchange and clearing houses in their respective markets. For years the mainland has preferred direct investment to portfolio investment when it came to opening its capital account. Under such a policy, both inbound foreign direct investment and outbound direct investment by Chinese enterprises have enjoyed a high degree of liberalization.

But a rather strict regulatory regime was imposed on cross-border portfolio investment in both directions. Statistics show that the mainland's outbound direct investment reached $609.1 billion by the end of last year, more than twice its outbound portfolio investment of $258.5 billion. And its inbound direct investment reached $2.3475 trillion, in sharp contrast to $386.8 billion worth of portfolio investment.