Shenzhen Stock Exchange in Shenzhen, South China's Guangdong Province Photo: Xinhua

The Shenzhen Stock Exchange (SSE) and the London Stock Exchange Group (LSEG) signed a memorandum of understanding (MOU) online on Tuesday, saying they will explore and promote multi-level cooperation in the areas of depositary receipt connectivity business, index product development, cross-border investment and financing services and market cultivation and promotion.

This was seen by analysts as a step forward in China's financial opening-up, which has been progressing at a vigorous pace across areas ranging from the bond market to Stock Connect programs, making it easier for overseas investors to access China's fast-growing market.

Under the overall guidance of the regulatory authorities of China and the UK, the two exchanges are steadily advancing the Shenzhen-London Stock Connect project, carrying out global depository receipt (GDR) business and technical preparation in an orderly manner, and supporting enterprises to actively utilize the two markets and resources for financing development, read a statement from the SSE on Monday.

"There is great potential for China-UK cooperation in capital markets. For a long time, the SSE and LSEG have maintained a good cooperative relationship, and the two sides have carried out practical cooperation in personnel training exchanges, market promotion, cross-border investment and other aspects," the SSE said in the statement.

In the next step, the SSE will, in accordance with the requirements of the China Securities Regulatory Commission, continue to improve the cross-border connectivity of infrastructure, deepen the connectivity with overseas capital markets, steadily promote the institutional two-way opening-up of China's capital market, and enhance the linkage of resources in both domestic and international markets.

Analysts said that the Shenzhen-London Stock Connect, like the Shanghai-London Stock Connect initiated in 2019, will further expand the financing channels for enterprises and promote the circulation of yuan under securities investment.

The SSE and LSEG launched the Shanghai-London Stock Connect on June 17, 2019, with the support of both the Chinese and the UK governments and in collaboration with regulatory authorities.

China's Huatai Securities became the first issuer to use the Shanghai-London Stock Connect. The company was admitted to trading on the Shanghai Segment of the Main Market of the London Stock Exchange on June 20, 2019.

The issuance enabled Huatai Securities to raise $1.54 billion through the sale of GDRs to international investors, which means the company's shares in the domestic market increased by 825 million, accounting for about 10 percent of its share capital.

According to the LSEG, China's economic growth has been a steady, gradual process, generating significant economic benefits for both China and the UK. The past three decades of policy and economic reforms have enabled China's rapid ascension to the global stage.

Shanghai and Shenzhen have launched several Stock Connect programs in the past few years to further expand financing channels for Chinese companies and open the domestic market to overseas investors.

For instance, China and Switzerland established a Stock Connect program, under which Chinese companies listed on the Shanghai or Shenzhen stock exchanges were able to access the Swiss capital market by listing GDRs on the SIX Swiss Exchange (SIX). The program became effective in July, 2022.

According to analysts, in the context of China's continuous financial opening-up, the appeal of China's financial assets is becoming an important factor to attract foreign investors and overseas capital to participate in the Chinese market.

Foreign ownership caps for securities, fund management, futures and life insurance companies have been lifted, allowing multinationals to have a bigger and stronger presence in China.

Some institutions estimated that foreign capital is expected to pour into China's A-share market on a large scale in 2023.

UBS Securities said that foreign capital is waiting for the opportunity to enter the Chinese market, and about 200 billion yuan ($28.8 billion) of overseas capital will flow into the A-share market in 2023. China International Capital Corporation estimated that there will be a net foreign capital inflow of 300 to 400 billion yuan in 2023.

Global Times