Specifically, the CSRC is seeking feedback on an amendment to a document called the Provisions on the Supervision and Administration of Depository Receipts under the Stock Connect between Shanghai Stock Exchange and London Stock Exchange (for trial implementation) (henceforth referred to as “the amendment”).
The idea of expanding the Shanghai-London Stock Connect program was first floated in April 2021, when the General Manager of the Shanghai Stock Exchange (SSE) Cai Jianchun said in a panel discussion at the annual Boao Forum in Hainan, “We are preparing to make important efforts in Switzerland going forward and we believe that the first batch of the trial will succeed this year”.
At the time, Cai did not provide more details on his statement, but was viewed as “another move to diversify China’s financing resources and deepening ties of the two countries”.
An explainer released along with the amended regulations – while not providing specific details on participating stock exchanges or when the expanded program will launch – confirmed plans to expand the Shanghai-London Stock Connect to include the Shenzhen Stock Exchange (SZE) and stock exchanges in Germany and Switzerland.
Below we provide an overview of the existing China stock connect programs and what the new amendment means for foreign investors and companies. The stock connect is an investment channel that allows overseas investors to trade in shares on domestic mainland Chinese stock exchanges and vice versa.
Under the two Hong Kong stock connect programs, companies can float shares directly on each other’s stock exchanges.
Under the Shanghai-London Stock Connect, shares are traded as depository receipts (DRs) through designated local brokers. Chinese companies listed on the SSE can list general depository receipts (GDRs) on the London Stock Exchange (LSE), foreign companies listed on the LSE can list Chinese depository receipts (CDRs) on the SSE. The stock connect allows individual investors to trade in stocks in China through local brokers. There are no requirements for foreign individual investors to participate in the stock connect programs, although Chinese individual investors seeking to participate in overseas stock exchanges must meet certain eligibility criteria.
There are currently four Chinese companies that have listed GDRs on the LSE: Huatai Securities (Ticker: HTSC), China Pacific Insurance, (Ticker: CPIC), China Yangtze Power (Ticker: CYPC), and SDIC Power Holdings Co (Ticker: SDIC). In total, these four companies have raised US$5.84 billion in funds through the stock connect.
