A new stock exchange connection between Britain and China launched on Monday, which will see UK-listed companies become the first foreign firms permitted to list stocks in mainland China.
After four years in development, the London-Shanghai Stock Connect was opened by Chancellor Philip Hammond and Chinese Vice-Premier Hu Chunhua. Qualifying firms will now be able to sell shares through dual listings on both the Shanghai and London stock exchanges, opening up British firms to new investors in addition to affording companies from both countries the opportunity to raise capital in the other.
In order to participate, Chinese companies must have a minimum market capitalization of Rmb20bn ($2.9 billion) to list on the London Stock Exchange. At present, just over 260 of the 1,500 companies listed in Shanghai will be eligible. Chinese brokerage Huatai was the first to debut on the London Stock Exchange on Monday.
The system involves the use of depositary receipts which will allow investors to buy a stake in a company listed in another country without exposure to currency or accountancy risks. The move forms part of a variety of measures by the British government to establish greater economic ties in the face of an increasingly hostile trade war between the US and China, along with a backdrop of an impending October Brexit deadline.
Despite Chinese stock markets being the world’s worst performing last year, they are projected to have more than $17 trillion in assets under management by 2030.
British Chancellor Philip Hammond previously alluded to improved business ties between the two nations at a conference in Beijing in April, where he aimed to secure lucrative financial, legal and design services contracts for UK firms within the overarching multibillion dollar Belt and Road Initiative.
In addition, for the time being at least, there remains a discrepancy between trading limits in the countries’ stock exchanges: Shanghai has a 10 percent daily trading limit, whereas London has no limit.
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