Shenzhen-HK Stock Connect can help neutralize separatism

Updated: 2016-08-24 07:23

By Zhou Bajun(HK Edition)

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Premier Li Keqiang presided over an executive meeting of the State Council on Aug 16. One of the decisions reached at that meeting was the approval of the Shenzhen-Hong Kong Stock Connect. Compared with the Shanghai-HK Stock Connect launched two years ago, the Shenzhen-HK connect is significant in both details and timing.

The first difference between the two stock-connect schemes is that the number of Hong Kong stocks open to Shenzhen investors outstrips the number of stocks Shanghai investors can buy under the Shanghai-HK Stock Connect. A total of 417 Hong Kong stocks are open to Shenzhen buyers while 318 are available to Shanghai investors.

Another difference between the two stock connect schemes is the scale of offers for Hong Kong investors to buy on the Shenzhen stock market. Under the Shenzhen-HK Stock Connect, Hong Kong buyers have a total of 880 stocks to choose from on the Shenzhen stock market but only 568 on the Shanghai stock market under the Shanghai-HK connect.

So far the most notable difference between the two cross-boundary securities investment schemes is that Shenzhen and Hong Kong investors can trade startup picks on each other's market under the Shenzhen-HK Stock Connect, whereas the Shanghai-HK Stock Connect does not have similar offers.

During their joint announcement on Aug 15 the China Securities Regulatory Commission (CSRC) and the Securities and Futures Commission of Hong Kong (SFC) said the Shenzhen-HK Stock Connect needs four months of preparation. The timing of this announcement suggests two intents. One is to emphasize the importance of "One Country" when the 2016 Legislative Council elections are underway and more effective measures are needed to crush "pro-independence" forces. The other is to demonstrate China's commitment to market reform as the annual G20 Summit in Hangzhou approaches. The timing of the announcement is therefore significant in two ways.

One is to reiterate China's reform and opening-up policy has not changed. Following the success of the Shanghai-HK Stock Connect it is natural to launch the Shenzhen-HK connect as the nation develops its capital markets to international standards in rule of law, market mechanism and globalization.

The Shanghai-HK Stock Connect became operational two years ago and the global economic, financial and political situation continued to undergo profound and all-round readjustments, while multiple international geopolitical conflicts showed no signs of lessening. The economic globalization process is not only stalling but also about to decline.

Certain Western powers, driven by the traditional "might is right" mentality that saw them win the Cold War, have been treating China's peaceful development with similar suspicion and prejudice. Chinese investments in some Western markets in recent years have been blocked or put on hold indefinitely out of political concerns. Although the International Monetary Fund approved the inclusion of renminbi in the basket of preferred currencies in international trade settlement known as "special drawing rights" (SDR), the A shares traded on stock markets in Shanghai and Shenzhen have not been accepted into the MSCI-issued indexes despite their massive trading volume and impact on major markets around the world today.

The annual G20 Summit will convene in the garden city of Hangzhou and is naturally attracting even more worldwide attention to host country China, because of its driving-force status in relation to the sputtering world economy's desperate need for a decisive jump-start. It offers China a great opportunity to prove to the world its sense of responsibility and commitment to standardizing and further opening its capital market.

The other way the significance of the Shenzhen-HK Stock Connect manifests can be seen here in Hong Kong, where local society is looking for further assurance from the central government in the form of unreserved support in these trying times, both politically and economically. Such support has been coming Hong Kong's way consistently since the handover in 1997 and proved instrumental in helping the SAR economy tide over those crises. Hong Kong's status as an international financial center and trade hub now relies on the national economy more than ever and the opening of the two stock connect schemes is no doubt a milestone in Hong Kong's capital market expansion as well as the mainland's ongoing market reform. Next the three stock markets will definitely work on the establishment of "futures connect" and "bonds connect". The more these three markets are connected the less credible "Hong Kong independence" will become.

(HK Edition 08/24/2016 page10)