The “Age of Chinese Capital”, as Deutsche Bank calls it, came a big step nearer reality this week with the launch of the Shanghai-Hong Kong Stock Connect. Though the scheme – in its initial incarnation at least – is fairly modest for a country that controls $4tn in foreign exchange reserves, it is nevertheless revealing of China’s master plan to remodel the global financial landscape to serve its own needs.
The programme allows offshore investors to buy up to Rmb300bn ($49bn) in mainland shares and mainland investors to purchase up to Rmb250bn ($40.8) in Hong Kong stocks. As such, it gives global hedge funds and retail investors their most unfettered access to China yet, while offering domestic investors a new route to international assets.
Since its launch on Monday, enthusiasm for “northbound” investments from Hong Kong into the mainland has been strong. But only a fraction of the “southbound” daily quota has been used, perhaps illustrating the fact mainland investors have long enjoyed sufficient access to Hong Kong equities through various illicit channels. Nevertheless, this lukewarm inception should not obscure the scheme’s financial and geopolitical dimensions.