The long awaited Shanghai-Hong Kong stock "through train" was officially launched on Monday, allowing investors from both sides to trade stocks in each other's market directly - using yuan. Restrictions on the amount of yuan Hong Kong residents can exchange were also lifted on the same day to support the stock scheme.

These initiatives are intended to strengthen financial cooperation between Hong Kong and the mainland. They are also part of the nation's strategy of liberalizing its capital account and internationalizing the yuan currency.

These moves come as political wrangling over Hong Kong's proposed electoral reforms is threatening the rule of law in the city and also its long-term stability. That the central government has given the green light at this time reflects its full confidence in the SAR government's ability to settle the current political dispute. It also reveals Beijing's full confidence in Hong Kong remaining a reliable platform and testing ground for further economic and financial reforms to be introduced on the mainland.

Endless political bickering has raised concerns that Hong Kong's significance in the country's overall strategy for development may be weakening. The launch of the stock through train and removal of the 20,000 yuan ($3,260, or HK$25,300) daily cap on exchanging Hong Kong dollars into yuan could be taken as a reaffirmation of Hong Kong's unique role as a conduit between the mainland and foreign markets.

Hong Kong's status as an international financial center will be strengthened. The stock trading link has, in effect, helped expand the city's stock market overnight by a sheer scale that otherwise could only be achieved through years, or even decades, of natural growth. The local bourse will become more attractive to international investors by providing them a handy, flexible platform to invest in the mainland market and to benefit from its great economic strength. And more investors mean bigger demand for professional and financial services in the city.

The city's role as a premier hub for offshore yuan businesses is also set to receive a big boost. The scrapping of the daily yuan conversion limit will go a long way in expanding the offshore yuan pool in Hong Kong. In fact, Hong Kong's pool of yuan savings has been steadily rising over the past several months as investors accumulated the currency in preparation for the launch of the stock through train. The city's pool of yuan deposits, the world's largest outside the mainland, has surged to approximately 1 trillion currently from 960 billion yuan in April when the stock connect plan was first revealed.

The removal of the yuan conversion cap also allows financial institutions to develop more yuan-denominated investment products. The availability of diverse investment products is one of the key requirements for an offshore hub to succeed.

With the internationalization of yuan having been established as a national strategy, the central government's latest initiatives and any future moves that enhance the yuan business in Hong Kong will no doubt boost the city's status as an international financial hub.

(HK Edition 11/18/2014 page1)