In June 2019, the Shanghai-London Stock Connect was launched at the London Stock Exchange (LSE) to facilitate a new level of capital cooperation between China and the UK, two of the world’s largest economies.
Political tension between the two countries came to a head last year due to the British government’s response to anti-government protests in Hong Kong, leading to rumors that the stock connect program had been halted.
However, despite rumors that the Shanghai-London Stock Connect was suspended, the China Securities Regulatory Commission affirmed that the Connect was in fact been operating normally since its inception in June last year.
“Shanghai London Stock Connect is an important initiative in China’s financial opening, it is instrumental in expanding cross-border investing and funding channels bilaterally,” Chinese Regulator Chang Depeng said. “Since June 2019, the link has been operating normally.”
A regulator stated that some companies have delayed issues on global depository receipts, but said these decisions were purely made based on market conditions and capital needs, according to a recent Bloomberg article.
Huatai Securities, a China-based brokerage firm, has been the first and only group to successfully list when it raised US$1.5 billion selling depository receipt on the London Stock Exchange in June 2019.
The potential benefits to investors in both countries are significant. For example, Chinese companies can now more easily raise capital internationally, including the ability to raise international funds to pay debts denominated in local currency. Similarly, LSE listed companies will have direct access to the Chinese equity investor pool, which is the second largest in the world. In addition, it enables blue chip companies from both countries to build and improve their reputation in the counterpart’s stock market.
The agreement was designed to allow Shanghai-listed companies to raise funds on London’s stock market and LSE-listed companies to sell shares on the Shanghai market. Shanghai-listed companies list on the London Stock Exchange via Global Depositary Receipts (GDRs), while LSE-listed companies can list on the Shanghai Stock Exchange through Chinese Depositary Receipts (CDRs). The main difference between CDRs and GDRs and the traditional securities listed on each representative market is that the former can only be exchanged by a limited number of designated brokers. Otherwise, the shares are fungible with their traditionally listed market counterparts.
While the current agreement has undoubtedly exchanged more political capital than actual capital, the opportunity for both countries cannot be overlooked.
China still serves as a tremendous opportunity for UK investors and has the possibility to strengthen prospects depending on the outcome of the post-Brexit free trade agreement.
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at firstname.lastname@example.org.
We also maintain offices assisting foreign investors in Vietnam, Indonesia, Singapore, The Philippines, Malaysia, and Thailand in addition to our practices in India and Russia and our trade research facilities along the Belt & Road Initiative.
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