George Osborne unveils UK China stocks link plans

China and Britain will be looking at ways to link their stock markets, the Chancellor of the Exchequer announced yesterday (September 21st).

George Osborne, who is on a five-day trip to China to promote ties between the two countries, added that a "feasibility study" would be carried out on a possible link between the London and Shanghai exchanges. 

The link would come after a similar link was implemented last year between Hong-Kong and Shanghai, called the Hong Kong-Shanghai Stock Connect scheme. Under the scheme, investors in Hong Kong and Mainland China can trade and settle shares listed on the other market via the exchange and clearing house in their home market.

"It’s in our interests that we have deeper and more mature financial markets across the world. I think London, as the home to the deepest and maturest capital markets, can play an important part in that," George Osborne said.

"We should be doing more business with China, we should be better connected to the Chinese economy, our financial institutions should establish stronger links. I think that will help China in this important reform and change it’s undergoing. It’s also going to help Britain," he added.

China's turmoil

The announcement comes at a time of turmoil for China and the Shanghai Stock Exchange. A recent series of weak economic data highlighted the country’s struggling stocks, sluggish property market and weak demand at home and abroad.

China's imports and exports have been decreasing for several months. In August, imports fell 14.3 per cent in yuan-denominated terms from a year ago, while exports fell by 6.1 per cent. China's monthly trade surplus expanded by around 40 per cent compared with July to 368 billion yuan (£37.7 billion).

A survey also showed Chinese manufacturing contracted at the fastest pace since 2009.
The preliminary version of the Caixin purchasing managers' index, a manufacturing index based on a survey of factory purchasing managers, fell to an unexpectedly low 47.1 points from July's 47.8 points.

This led the People's Bank of China (PBOC) to devalue the yuan, arguing that the way it sets exchange rates would now become more market-oriented.

China's central bank also cut its main interest rate by 0.25 percentage points to 4.6 per cent at the end of August in a bid to calm stock markets.

The interest rate cut was the fifth one since November and the latest effort from Beijing to stabilise markets, after suffering quasi-continued losses since June that wiped out more than £1.5 trillion.

China's economy expanded 7.4 per cent last year, its weakest since 1990, and has slowed further this year.