China’s most famous liquor, Maotai, and its top carmaker, SAIC, were among the renminbi draws this week as Chinese authorities launched a much-anticipated cross-border trading scheme that opened Shanghai’s stock market to foreign investors via Hong Kong. The world’s second-largest economy is renowned for capital controls aimed at limiting the flow of money into and out of the country, so the Shanghai-Hong Kong Stock Connect pilot program, launched Monday, was hailed as marking a new era of access and allowed Chinese citizens a rare route to international markets.
One week on, the fanfare has died. Trading levels have crashed lower each day, to a fraction of the daily quota of share purchases, and mainland investors have shown a particular lack of interest. The long-promised “through train” of mutual market access has instead proved a “ghost train,” according to investment bank CLSA.
Analysts interviewed Friday insist that despite its slow start, the plan represents an important development with huge long-term potential. “It will ultimately be expanded, both in terms of size of flows allowed and the markets it encompasses,” said Mark Williams, an Asia economist at the Capital Economics consultancy in London. “If that happens, it will become a very significant part of global financial markets.”
The new scheme lets foreign investors with accounts at the Hong Kong stock exchange directly invest in the shares of 568 Chinese companies listed on the Shanghai stock exchange. Thursday’s trading reached only 18% of the daily “northbound” quota of $2.1 billion. Previously, only a limited number of foreign institutional investors, approved by Beijing, could trade mainland-listed stocks. Mainland Chinese investors took up an even smaller, and daily shrinking, proportion of the daily “southbound” quota of $1.7 billion of Hong Kong-listed shares.
In Shanghai on Monday, the head of the China Securities Regulatory Commission, Xiao Gang, called the Connect platform “conducive to the internationalization of the renminbi.” Though Chinese policymakers look to increase the RMB’s use outside China, “there are good reasons to think the dollar will remain the pre-eminent global currency,” said Williams of Capital Economics.
A poster and leaflets prominently displayed the Connect scheme Friday at a south Beijing outlet of Guotai Junan Securities, one of China’s largest brokerages. Few individuals have bought Hong Kong shares recently, said consultant Bu Kefeng, as they worry about higher commissions and different trading rules, while institutional investors prefer Shanghai stocks.