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What is the most significant aspect of the "through train" plan?
The "through train" is the culmination of nearly 10 years of co-operative efforts between the Hong Kong and mainland authorities on the integration between the two stock markets. This was tried earlier in 2006 and 2007, but the timing was not ripe and the process was delayed by the 2007 to 2009 recession.
The quotas are tiny relative to market cap. Isn't the significance overstated?
No. Chinese reforms are always pilots that test the waters and enable the market to experiment until the systems and regulatory tools are "prototyped" before full opening. This opening is significant - the size itself can be adjusted quickly if need be.
Why should the "through train" be any more successful than the poorly taken up QFII quotas in encouraging international purchases of A shares?
Everything is a matter of timing. Individual and periodic approvals of quotas, both inward or outward (QFII and QDII) are arbitrary decisions that lag market decisions. As the exchange rate is closer to the equilibrium level and there is more latitude for two-way movement of the RMB, pricing of the A and H shares will converge, as it is already doing, and if the mainland economy recovers after reforms, the potential for greater Hong Kong and foreign participation in mainland markets and vice versa will be enhanced.
Is it more about improving sentiment on A shares than capital account reform?
Obviously, sentiment would help as this is an opening-up measure, but in the long run, the fundamentals will count.
Which reforms would you expect to follow if China is intensifying its capital account liberalisation efforts?
In the short run, there will be lots of noise, but the signal about reforms is quite clear. If this measure seems to work, then I would expect larger QDII quota approvals, and similarly widening of the RMB band.
How does this improve efficiency of capital allocation, which is at the heart of the reform aims?
I don't see how improved pricing and less direct approvals will not improve resource allocation.
Where should the "through train" link next - yuan deposit centres or those with swap line agreements? 
The two issues are interlinked, but the swap lines are already there to further trade finance and also liquidity in RMB offshore if needed. When CNH deposits increase will depend on the need for liquidity in Hong Kong and on CNH deposit rates.
What about extending it to other asset classes, such as commodities or bonds?
I am sure these are on the cards - it is a matter of when.
What does the scheme say about Hong Kong's importance to China's financial reform agenda?
Hong Kong has always played a crucial role in China's financial reform agenda. Don't forget that the whole SOE reform and bank reform programme started with listings in Hong Kong and was subject to Hong Kong accounting and regulatory standards. Being a large country, China's reform programme is an ongoing story, and Hong Kong will continue to play an important role in China's phased integration with global financial markets.
How accurate is the view that this reform will hasten the demise of the Hong Kong dollar and its replacement by the yuan? 
I really do not see why the dollar should be delinked. The dollar will be going through a strong phase as interest rates are expected to rise and the US will become a net energy exporter. This does mean that the link will continue to play an important role in intermediating US dollar trade and investments. It took 70 years for the dollar to take over the role of sterling, so it is unlikely that the yuan will seriously challenge the dollar as a reserve currency until the capital account is fully opened and the domestic market liquidity becomes strong and as liquid as the dollar. There is some way to go.
Andrew Sheng is distinguished fellow of the Fung Global Institute


Timing for 'through train' is right, says economist Andrew Sheng

Andrew Sheng

Business

Money

Markets & Investing

Former Securities and Futures Commission chairman Andrew Sheng answers questions from Nick Edwards on the 'through train' plan to integrate the HK and mainland markets
