Two-way through train better for mainland investors, brokers
While the mainland side appears to have gained the most, two-way stocks flow is better for all
The through train is back on, and this time not filled with passengers on their way to financial ruin.
The Shanghai-Hong Kong Stock Connect scheme, due to begin in October, is a two-way stock trading programme designed to keep a good portion of the benefits on the mainland. Hong Kong stockbrokers are already griping that Shanghai will get the bulk of the glory and commissions.
Compare this with the previous, one-way, scheme, announced in 2007 when the mainland financial system was overheating amid huge capital inflows. Beijing needed a relief valve, and some bright spark came up with the idea of letting mainlanders funnel their savings into another jurisdiction's bubble: Hong Kong's.
It is not an easy thing to operate a fixed exchange rate regime. When capital inflows are greater than capital outflows, a central bank has to print new currency to meet demand, otherwise the exchange rate will rise.
In the mid-2000s, China was sitting on years of accumulated trade surpluses, exports were booming, and foreign direct investment and speculative capital inflows were heady.
The central bank was printing a mountain of fresh yuan to keep the currency from appreciating by too much; but this in turn led to soaring growth in the money supply.
