China Announces Measures to Enhance Stock Connect and Support Hong Kong's Financial Center Status

The China Securities Regulatory Commission (CSRC) unveiled five key measures on Friday aimed at enhancing the Stock Connect program and bolstering Hong Kong's position as an international financial hub. The announcement comes as part of China's ongoing efforts to strengthen financial ties with Hong Kong and promote the coordinated development of capital markets between the mainland and the special administrative region.

The measures include expanding the scope of eligible exchange-traded funds (ETFs) under the Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect schemes, incorporating real estate investment trusts (REITs) into the cross-border investment channel, and supporting the inclusion of yuan-denominated stocks in southbound trading. Additionally, the CSRC plans to optimize mutual recognition of funds between the mainland and Hong Kong and encourage leading Chinese companies to list in Hong Kong.

According to the CSRC, these initiatives will provide investors with a wider range of investment products and opportunities, further internationalizing the yuan and enhancing Hong Kong's status as an offshore RMB business center. The regulatory body expressed its commitment to working closely with the Securities and Futures Commission of Hong Kong to ensure the smooth implementation of the new measures.

Why this matters: The expansion of the Stock Connect program and the inclusion of new investment products underscore China's firm support for Hong Kong's unique role as a global financial center. These measures are anticipated to boost capital flows between the mainland and Hong Kong, drive the development of Hong Kong's financial markets, and strengthen the city's competitiveness on the international stage.

The Hong Kong government welcomed the CSRC's announcement, with a spokesperson stating, "The new measures will help increase the number of attractive investment products, provide more investment opportunities to investors, and enhance Hong Kong's status as an offshore RMB business center." The spokesperson added that the government will work closely with mainland authorities to implement the measures and take additional supporting actions, such as waiving stamp duty on REIT unit transfers and enhancing the regulatory regime for collective investment schemes and REITs.

Since the new overseas listing rules took effect, 72 Chinese companies have completed the registration process for initial public offerings (IPOs) in Hong Kong, highlighting the city's appeal as a destination for mainland firms seeking to raise capital. The CSRC's support for leading Chinese enterprises to list in Hong Kong is expected to further boost the city's IPO market and attract more high-quality issuers.

The Shanghai and Shenzhen stock exchanges also released draft rules proposing lower ETF requirements and a reduction in the ETF index weighting requirement for their respective trading links with Hong Kong.

Key Takeaways

• CSRC unveils 5 measures to enhance Stock Connect, boost HK's status as financial hub
• Measures include expanding ETF scope, adding REITs, supporting yuan-denominated stocks
• Initiatives aim to internationalize yuan, strengthen HK's role as offshore RMB center
• HK govt welcomes measures, to work with mainland to implement and provide support
• Measures expected to boost capital flows, HK's IPO market, and attract more issuers