China to quadruple Stock Connect quota

Increase in Stock Connect quota to help prepare for MSCI A-shares index inclusion

Yi Gang, governor of PBoC, speaking at the Boao Forum for Asia 2018.
Yi Gang, governor of PBoC, speaking at the Boao Forum for Asia 2018.

THE People's Bank of China (PBoC) announced on April 11 that the daily quota of the Shanghai/Shenzhen Stock Connect will be increased by four times, effective on May 1 this year. This will further improve the stock market connectivity of China and Hong Kong, which is part of China’s plan of opening up the financial sector, according to Yi Gang, the governor of PBoC, speaking at the Boao Forum for Asia 2018.

Agreed by China Securities Regulatory Commission and Hong Kong’s Securities and Futures Commission, the daily quota of the northbound trading through the two Connects will be increased from 13 billion yuan (approx. US$2.07 billion) to 52 billion yuan each; the daily quota of the southbound trading through the two Connects will be increased from 10.5 billion yuan to 42 billion yuan each.

The measure is in part to ensure that the trading quota is sufficient on the first day of the implementation of the inclusion of 222 A-shares in the MSCI Emerging Market Index, to take place in June this year, according to Sally Wong, chief executive officer of Hong Kong Investment Funds Association.

“More international indexes will include China's A-shares. This will be a trend,” says Wong. “The quota of the Stock Connect is sufficient for now, but in the long run, it will never be sufficient with the increasingly growing demand from international investors,” she adds.

Fanny Wong, deputy general manager of Bank of China (HK), holds a similar view, saying that it will not be surprising if the quota is further expanded in the future.

“It is estimated that the current northbound trading through the Stock Connect per year is about 200 billion yuan to 300 billion yuan,” says Shen Hua, CEO of Bank of China (HK) Asset Management, noting that with the valuations of H-shares being modest, this figure will increase significantly after the quota is expanded.

In addition to the increased quota, the Shanghai-London Stock Connect will be launched this year, according to Yi.

“In response to the US, there is a clear opening-up of China. A lot of the international fund managers in Hong Kong are very excited about those opportunities,” says Graham Turl, managing director, general counsel Asia-Pacific at BlackRock Asset Management North Asia Limited.

According to the PBoC, other major opening-up measures include:

1. Eliminating the foreign-shareholding restriction on banks and financial asset management companies and allow foreign banks to set up branches and subsidiaries in the country.

2. Increase the foreign-shareholding cap in security, fund, futures and insurance companies to 51%, without further limits set after three years.

3. Removing the requirement that the domestic shareholder of a joint-venture broker needs to own at least one securities company.

4. Allowing qualified foreign institutional investors to operate insurance agencies and valuation businesses.

5. Opening up the business scopes of foreign-funded insurers, in-line with the local institutions.

Furthermore, according to Yi, PBoC will roll out the following measures within this year:

1. Encourage foreign ownership in sectors including trusts, financial leasing, auto finance, currency brokerage and consumer finance.

2. Instituting no-cap on foreign ownership of financial asset investment companies and wealth management companies newly established by commercial banks.

3. Substantially expanding the business scope of foreign banks.

4. Removing restrictions on the business scope of jointly-funded securities companies, treating domestic and foreign institutions equally.

5. Foreign insurance companies will no longer need to have a representative office in China for two consecutive years prior to establishing a fully-owned institution.


For the full announcement from the PBoC in English, please click here

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12 Apr 2018

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