Investors in Hong Kong and on the mainland were reminded again yesterday that what Beijing policymakers announce may not come to pass after the once highly anticipated through-train investment programme was officially shelved.
The State Administration of Foreign Exchange said in a statement that the rule enabling Chinese individuals to directly buy Hong Kong-listed stocks was being invalidated in 'keeping with the times'.
The official announcement the through train is being scarpped is yet another example of mainland financial policies being reversed amid the roller-coaster rides on the domestic and overseas equity markets.
'It is not news since it was known to all that the through train had derailed a long time ago,' said Morgan Stanley analyst Allen Gui. 'Programmes of that kind will never surface again.'
SAFE announced in August 2007 that the mainland would allow individual investors to trade Hong Kong stocks directly under a trial run.
It was a ground-breaking move to direct capital outflow and boost mainland companies listed in Hong Kong, which traded at a huge discount to their A-share counterparts.
The regulator designated Bank of China's branch in Tianjin's Binhai area to run the business under a pilot scheme. Thousands of Chinese residents flocked to Tianjin to open accounts, believing they could strike it rich in the Hong Kong stock market.
The through-train programme triggered a buying euphoria in Hong Kong even before its official launch, with the Hang Seng Index soaring more than 40 per cent within a month. But a split between the mainland's securities regulator and the foreign exchange watchdog stopped the mainland taking substantive steps towards implementing the rule.
The China Securities Regulatory Commission strongly opposed the rule, saying a huge capital outflow would undermine the growth of the domestic market.
In November 2007, Premier Wen Jiabao said the scheme would not be implemented soon because Beijing needed time to work out proper rules to ensure the smooth running of the programme.
'Beijing had reason to be cautious at that time since Hong Kong stocks had already staged a strong rally, increasing the risks for mainland investors,' said Chen Jiwu, the president of Shanghai Vstone Capital.
Beijing has abandoned the idea of letting individual investors trade overseas stocks directly, analysts said. Instead, financial regulators have redoubled efforts to encourage buying into qualified domestic institutional investor funds. They hope retail investors will give their money to the professionals to invest in overseas stocks.
In October last year, Beijing granted a combined US$1.5 billion QDII quota to two mainland asset managers for overseas equity purchases after a 17-month hiatus.
Some observers say the U-turn Beijing made on the through-train scheme has caused further damage to the credibility of regulators.
In 2007, the China Securities Regulatory Commission announced it would launch stock index futures in the Shanghai-based China Financial Futures Exchange. The plan was put on hold at the end of the year as Beijing worried that short selling would cause a boom-to-bust cycle on the mainland's volatile market.
In 2008, the regulator declared that margin trading and a short-selling trading mechanism would be launched, but it soon made an about-turn amid a bearish market.