China approves trading link for Shenzhen, HK stocks

China launched a landmark "stock connect" between the bourses of Shanghai and its special administrative region of Hong Kong in late 2014

China's central government has approved plans to link trading between the Shenzhen stock exchange and the Hong Kong market, it said Tuesday, paving the way for the long-awaited reform. The Hong Kong stock exchange said it expected preparations for the launch of the mechanism to be finished in four months' time, but that a start date would be subject to regulatory approval. China launched a landmark "stock connect" between the bourses of Shanghai and its special administrative region of Hong Kong in late 2014, opening up its closeted share market to the outside world and giving foreign investors access to Chinese companies not quoted elsewhere. Mainland China's second stock exchange, in the southern city of Shenzhen, was due to follow last year, but the launch was delayed by a market rout. The powerful State Council -- or cabinet -- has given its high-level blessing to the scheme, it said in a statement on its website Tuesday. "The State Council has approved the implementation proposal for the Shenzhen-Hong Kong Connect," Premier Li Keqiang was quoted as telling a meeting of the body. He added preparation work was "basically completed" but gave no date for the launch. Hong Kong exchange chairman C.K.Chow said the link-up would "open up another mainland market for international investors and strengthen the mainland's links with Hong Kong" in a statement late Tuesday. The exchange's chief executive Charles Li said one of the aims was to build Hong Kong into an offshore wealth management centre for mainland investors. The move demonstrates the "continuous commitment" of the Chinese government towards financial reforms, said economist Aidan Yao of Axa Investment Managers. Yao said it was "an efficient way of liberalising the onshore financial market". A report from Macquarie Securities said the launch would provide international investors access to China's "most dynamic equity market". Chinese stocks surged on Monday in anticipation of movement on the proposal, though the benchmark Shanghai index fell back on Tuesday as investors took profits. Still, the news could offer support for Chinese shares on Wednesday, Zhang Qun, Beijing-based analyst at Citic Securities, told AFP. "It will not affect the market significantly. Some shares related to Shenzhen-Hong Kong Stock Connect will probably open higher tomorrow morning," he said. The China Securities Regulatory Commission (CSRC), the stock market watchdog, said on Friday that the programme will be launched this year, repeating comments a spokesman made in June. The existing Shanghai-Hong Kong Stock Connect enables international investors to trade selected stocks on Shanghai's tightly restricted exchange, and lets mainland investors buy shares in Hong Kong. Premier Li said the Shenzhen link would represent a "firm step ahead" as he pledged closer cooperation between mainland China and Hong Kong.

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