The Shanghai-London Stock Connect, launched in June to much fanfare, has been suspended by China amid rising diplomatic strains with the UK over mass protests in Hong Kong. The link between the London and Shanghai stock exchanges was first announced in 2015 and designed to allow UK investors to more easily invest in Chinese public companies and vice versa, deepening economic ties between the two countries. Companies listed on one exchange are able to sell their shares on the other.
However, the perception that the UK has tacitly supported pro-democracy demonstrations in Hong Kong by criticising the way the city’s government has handled them has strained relations between Westminster and Beijing. Tensions have been aggravated by the detention of former staff member of the UK’s Hong Kong consulate. HSBC, the London-listed international banking giant established in Hong Kong while it was a British colony, yesterday closed ten branches in the city following vandalism of property. The bank has carefully attempted to remain neutral during the period of unrest.
After the 1st of January saw the biggest pro-democracy protests in months in Hong Kong, Reuters yesterday reported that Beijing had decided to temporarily block any new listings via the Stock Connect scheme. There is currently little clarity around how long the suspension could last.
In the UK, the London Stock Exchange and FCA declined to comment. China’s ministry of foreign affairs told Reuters it was unaware of details but “hopes the UK can provide a fair and unbiased business environment for Chinese companies that invest in the UK and create the appropriate conditions for both countries to carry out practical co-operation smoothly in various fields”.
The development is a blow for the LSE, which had described the link between the two exchanges as offering “ground-breaking opportunities”. However, it’s safe to say that the Stock Connect has had a muted start. So far only one company, Huatai Securities, which was supported by HSBC, has used the scheme. It raised $1.5 billion through a global depository receipts issue on the LSE.
Last month another Chinese company, SDIC Power, pulled an issue via the Stock Connect, explaining the move as due to “market conditions”. China Pacific Insurer was expected to release an issue on the LSE in the first quarter of 2020 but that now seems unlikely to go ahead. So far no London-listed companies have used, or indicated that they plan to use, the link to issue securities on the Shanghai exchange.
While new listings have been suspended by China, the Stock Connect is still operational for any existing issues and Huatai shares were yesterday still trading in London.
Andrew Monk, chief executive of VSA Capital, a finance company based in London and with operations in China, commented that launching Stock Connect “was never going to be easy”.
“It appears that 2020 has not started well and there are some hiccups but longer term this is not an issue as there is a determination and long term natural link between London and Shanghai.”