A STOCK trading program linking the Shanghai and Hong Kong stock exchanges will speed up reforms of the mainland’s stock market and make it more attractive to investors at home and abroad, according to analysts.

    Test trading on the Hong Kong stock market began last week for the Shanghai-Hong Kong stock connect, a pilot program designed to allow mutual stock market access for investors on the mainland and in Hong Kong.

    From Aug. 11 to Sept. 5, brokerages on the mainland may make simulated investments in 14 selected stocks from the Hong Kong stock exchange to test the new system, the Shanghai bourse said.

    The tests include regular stock trading and clearing, trading suspension in the case of high typhoon alerts, adapting to different work day systems on the mainland and in Hong Kong, and other possible conditions.

    The Hong Kong bourse said it will conduct tests for investments in Shanghai between Aug. 23 and Sept. 13.

    The program was first announced in April. A joint circular released by both bourses said there would be a six-month preparation period before official launch of the program.

    Analysts predict that mutual trading access will be officially launched in mid-October, following technological preparation and tests of both exchanges.

    The program will step up the market-oriented reform of the mainland, especially reform in the securities market, and promote the integration of mainland and Hong Kong capital markets, said Dong Dengxin, a financial and securities researcher at Wuhan University of Science and Technology.

    Compared with that of Hong Kong, an important global financial center, the mainland’s stock market lags behind in terms of openness to global capital, effective supervision and protection for investors.

    The program will press the mainland to bring its stock market up to international standards, with well-functioning laws and regulations, high quality of listed companies and market-oriented initial public offering (IPO) and delisting mechanisms, experts said.

    The mechanism will help raise the attractiveness of the mainland’s securities market to investors both at home and overseas, according to Dong.

    At present, institutional investors outside the mainland can only invest on the Shanghai and Shenzhen bourses by becoming Qualified Foreign Institutional Investors (QFIIs).

    China launched the QFII program in 2002 to allow licensed foreign investors to use offshore yuan to invest in China’s capital market. Currently, 229 institutions are included in the program, with a combined investment quota of US$150 billion.

    The Shanghai-Hong Kong program provides another channel for overseas investors to invest in the mainland, although trading in the initial stage will only be allowed for a portion of stocks on both bourses and below a certain trading volumes.

    Under the mechanism, the upper limit for trading Shanghai-listed stocks is set at 300 billion yuan (US$48.76 billion), while that for Hong Kong-listed shares is 250 billion yuan.

    If the restrictions are lifted in the future, the program will unleash huge growth potential for the stock market on the mainland, said Xi Junyang, professor with the Shanghai University of Finance and Economics.

    Dong said that the new program will also help narrow the gap between a company’s stock prices in Shanghai and Hong Kong. (Xinhua)