Political tensions force China to block British stock link

on Jan 4, 2020
Updated: Mar 11, 2020
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  • China postpones its plans of cross-border listings between Shanghai and London stock exchanges.
  • China cites the rising political complications to have contributed to the delay.
  • Stock Connect scheme was aimed at improving political & business bonding between China & the UK.
  • Banks and companies are keenly observing PM Johnson's stance towards China and Hong Kong's protests.
  • The United Kingdom is eager to build relations with non-EU countries ahead of Brexit.

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China had previously announced plans of cross-border
listings between Shanghai and London stock exchanges. Owing to the recent political
complications, the sources informed, all such plans have been put on a
temporary halt.

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The temporary suspension has thrown in jeopardy the aims
of the Shanghai-London Stock Connect scheme. It was supposed to strengthen
relations between China and Britain, allow Chinese firms to gain investments
and, improve access for mainland investors to the UK-Listed firms.

Sources cited political tensions to have contributed to the delay in Stock Connect. Two public officials brought to light Britain’s standing regarding the protests in Hong Kong and the detention of an ex-employee at its Hong Kong consulate.

Banks And Companies
Are Looking Forward To PM Johnson’s Stance Towards China

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For now, British banks and companies that are a part of
the scheme are watching every move of the newly elected Prime Minister, Boris
Johnson. They want to know how he approaches the deteriorating relations with
China. There is much speculation on the stance he may take on the protest
ridden Hong Kong.

China has placed blame for the Hong Kong unrest on
foreign powers such as Britain and the US. Both the London and Shanghai stock exchanges
have chosen to stay silent on the matter. The Ministry of Foreign Affairs in
China stated on Friday that it hopes that the UK will be fair in providing
Chinese companies a healthy business environment to operate in and make
investments in the UK.

Stock Connect was launched last year to allow China and
the Great Britain to build a bond and to create a global link between the two
to allow expansion of capital markets.

Huatai
Securities Was The Pioneer That Joined Stock Connect

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The first Chinese company to engage in the scheme was
Huatai Securities. It was supposed to be followed by SDIC Power who was
expected to list GDRs (global depository receipts) in London valued at its
share capital’s 10%. However, the deal was postponed and unfavorable market
conditions were cited as the reason.

Sources speculate that the deal was postponed due to the
suspension of Stock Connect in China. Other firms that were hopeful of
expansion and increased investment such as China Pacific have also been ordered
to halt their plans.

Since the UK is keen to build
relations with non-European Union countries
as it prepares to exit the EU, it
has also suffered from the suspension of the scheme.

The London Stock Exchange ended last year at its worst
performance in a decade in terms of new listings. The stock market fundraisings
have also taken a hit in light of the UK’s imminent departure from the EU on
January 31st.

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