Editorial | New Connect scheme benefits Britain and China in tense times
- The new link between the exchanges in London and Shenzhen is also a boost for Hong Kong, as it will complement city’s role as one of the world’s most important financial hubs
In setting up the Shenzhen-London Stock Connect, the capital markets between China and Britain are drawn ever closer. It is a step forward in the nation’s financial opening-up after the pandemic and comes after the Shanghai-London Connect in 2018. At a time of rising geopolitical tensions between the two countries, such financial ties are even more welcome as a brake to moderate hostilities.
The new Connect will open another fundraising avenue for Chinese companies in London. Some have expressed concerns about the status of Hong Kong as a financial hub. They need not worry. As with the Shanghai-London Connect, the new market link will be complementary with the city, rather than competitive.
As the Chinese saying goes, a cunning rabbit has multiple burrows. Chinese companies are always looking for sources of new capital; the world ought to be their oyster.
Hong Kong will always play an important part. At US$5.26 trillion, the city’s stock exchange is much larger than Britain’s US$3.03 trillion in market capitalisation. That means companies in search of high valuation and capitalisation will still flock to Hong Kong for its bigger and deeper capital pool.
The links allow Chinese companies to list their A-shares as global depository receipts (GDRs) in London and raise capital from European investors, in much the same way American depository receipts (ADRs) enable US-listed Chinese companies to raise funds from US investors.
The mainland’s overseas IPO trend is clear: look to Europe and away from the United States. Chinese companies’ US listings in 2022 fell to US$230 million, a mere 2 per cent of the US$12.85 billion raised in 2021, kicking the New York Stock Exchange out of the global top 10 ranking last year. This is to be expected, given the US’ hostilities towards all things Chinese.