December 5, 2021 marks the fifth anniversary of the launch of Shenzhen-Hong Kong Stock Connect. In the past five years, Shenzhen-Hong Kong Stock Connect has been running smoothly, its mechanism arrangement as well as its transaction size and market influence continuously improved. It empowers the reform and development of the capital markets in Shenzhen and Hong Kong, effectively promotes the interconnection of capital markets of the Guangdong-Hong Kong-Macao Greater Bay Area, and contributes to the two-way opening of China’s capital market.

Continuously expanding transaction size and steadily increasing market influence

The transaction size has reached record highs. In the past five years, institutions and investors from Shenzhen and Hong Kong have actively participated in Shenzhen-Hong Kong Stock Connect, driving the continuous and rapid growth of transactions. As of December 5, the cumulative transaction amount of Shenzhen-Hong Kong Stock Connect reached CNY 41.9 trillion, with an average annual growth rate of 94.5%, making the arrangement an important window for the two-way opening of China’s capital market.

Two-way transactions have continued to grow rapidly. The accumulated amount of Shenzhen Connect northbound trading is CNY 33.7 trillion, with an average annual growth rate of 104.1%, showing an accelerating momentum. The cumulative underlying stocks for Shenzhen Connect southbound trading is CNY 8.2 trillion, with an average annual growth rate of 82.2%, maintaining a positive trend.

Market influence has steadily increased. With the increase of transaction amount, the influence of Shenzhen-Hong Kong Stock Connect on the capital markets of the two places is escalating day by day. At present, Shenzhen Connect northbound trading accounts for 4.5% of the trading amount of A shares on SZSE, and Shenzhen Connect southbound trading accounts for 6.8% of the trading amount in the Hong Kong stock market. The arrangement has become an important channel to attract incremental funds and is making positive contributions to improving trading activity and market liquidity.

The mechanism arrangement has been continuously improved, and the interconnection is growing fast and steadily

The daily quota is quadrupled. Since May 2018, the daily quota of Shenzhen Connect northbound trading has increased from CNY 13 billion to CNY 52 billion, and that of Shenzhen Connect southbound trading has increased from CNY 10.5 billion to CNY 42 billion. This has made it more convenient for overseas long-term institutional investors to participate in the A-share market, provided important support for A-shares to be included in such international indexes as MSCI and FTSE Russell, and demonstrated to the world China’s determination and confidence in expanding the opening up of the capital market.

The scope of underlying securities is constantly enriched. In the past five years, SZSE has actively expanded the scope of eligible securities for Shenzhen-Hong Kong Stock Connect by including companies with a weighted voting rights (WVR) structure, biotechnology companies and H-share companies corresponding to Star Market A + H shares into the underlying stocks for Shenzhen Connect southbound trading to better meet the market demand of investors.

Cross-border supervision has been continuously strengthened. SZSE conscientiously enforces the requirements for an open capital market, namely “maintaining a clear direction, removing unnecessary restrictions, and earnestly exerting necessary constraints”. Through these efforts, SZSE has continuously promoted the improvement of cross-border regulatory cooperation mechanism to enhance regulatory efficiency.

Market actions are more convenient. Always keeping the demand of the market in mind, SZSE revises its business rules and operational guidelines in time, optimizes the disclosure threshold for foreign shareholding ratio, and facilitates international index companies to keep abreast of foreign shareholding and adjust their target, to better serve investors’ decision-making, improve the quality and efficiency of market services, and provide convenience to market players.

Two-way transactions see net buying for cross-board funds, and the innovation characteristics of SZSE win recognition

The market value of two-way stock holdings has been continuously enhanced. International investors have accumulated a net buying amount of CNY 793.21 billion through Shenzhen Connect northbound trading, with a stock market value of CNY 1.3 trillion, accounting for 4.2% of the traded market value of A shares on SZSE, and become an important player in A shares market. Mainland investors have accumulated a net buying amount of HKD 946.90 billion through Shenzhen Connect southbound trading, with a stock market value of HKD 1.0 trillion, injecting more sources for Hong Kong to consolidate and upgrade its status as an international financial center.

The proportion of investment in ChiNext Board is increasing day by day. The enthusiasm of Shenzhen Connect northbound investors to participate in the ChiNext Board has been on the rise. Especially since the reform of the ChiNext Board and the pilot project of the registration-based IPO system, the proportion of ChiNext Board in the transaction amount, net buying and stock market value of Shenzhen Connect northbound trading has increased to 34.9%, 90.0% and 39.6%, showing the wide recognition of international investors for the results of the reform.

International investors appreciate the innovation characteristics of SZSE. Shenzhen-Hong Kong Stock Connect plays the role of a bridge, and accelerates the gathering of cross-border funds in hard and core technology and new areas of the economy, especially in emerging industries such as new materials, new energy, biomedicine and new-generation information technology.

The market ecology has gradually improved, helping the two places to cooperate and achieve win-win results

The investment environment is continuously improved. In the past five years, based on the demands of investors, SZSE has developed and improved the online voting system to provide smooth channels for international investors to participate in the governance of listed companies. SZSE has constantly enriched the means to provide services for international investors. For example, SZSE provided "Easy IR" services in English, built English Yellow Pages for listed companies, and published both English and Chinese briefing on the disclosure of listed companies eligible for Shenzhen Connect northbound trading. In addition, it conducted a series of activities such as international roadshows and “Global Investor Service Week” to promote the interaction and communication between overseas investors and listed companies on SZSE and protect the legitimate rights and interests of international investors.

The trading order is earnestly safeguarded. SZSE has strengthened the monitoring of abnormal transactions. In case of any abnormal situations, it analyzed and dealt with them in time according to laws and regulations to earnestly maintain the trading order of Shenzhen-Hong Kong Stock Connect and prevent cross-border transmission of market risks.

The cooperation between the two places is promoted and win-win results are secured. Taking Shenzhen-Hong Kong Stock Connect as an opportunity, the market players of the two places have been exploring to expand the coverage of brokerage, research and consulting business, promoted out product innovation and index innovation with Shenzhen-Hong Kong Stock Connect as the theme, and the regulatory cooperation between the two places continues to improve.

Next, SZSE will adhere to the guidance of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era and follow the unified arrangement of the CSRC, consciously position itself in the new stage of development, and completely, accurately and comprehensively implement the new development philosophy. In addition, SZSE will actively serve to build a new development pattern, further improve the interconnection mechanism, promote the optimization of the high-level two-way opening system and mechanism of China’s capital market, make every effort to build a high-quality innovative capital center and a world-class exchange, and make positive contributions to serving the development of Guangdong-Hong Kong-Macau Greater Bay Area.