Hong Kong-Shanghai pact will benefit both cities and the nation
Hong Kong and Shanghai, China's international and domestic financial centres, used to talk about competition more than collaboration. Now the bigger context of geopolitical tension has thrust Hong Kong to the forefront of Beijing's commercial expansion strategy amid an American tariff and tech war aimed at containing China' rise.
Shanghai and Hong Kong have signed a pact to connect the nation's premier onshore commercial centre with its offshore financial hub. This was the first agreement signed since the annual Lujiazui Forum began in Shanghai's financial zone in 2008.
Now they can play to each other's uniqueness and strengths. An example is to be found in US threats to delist Chinese companies from its stock exchanges. As a result they are looking elsewhere to raise capital for expansion. That is where one of Hong Kong's greatest strengths comes into play. The two cities' action plan will see more mainland firms coming south to launch initial public offerings on the Hong Kong stock exchange. It therefore channels mainland companies' response to the call to 'go global' through Hong Kong.
The plan also calls for expansion of the Hong Kong-Shanghai Stock Connect programme to include more equities, exchange traded funds, gold and bonds. The connect scheme taps the appetite of international investors for mainland shares and allows mainlanders to buy Hong Kong stocks. That not only deepens liquidity but adds stability to the markets.
With China's ailing real estate sector showing few signs of recovering its appeal to investors, authorities are trying to provide them with more stable investment alternatives that also help fuel productive expansion and corporate activity.
The pact shows that when two vibrant, competitive financial centres can complement each other it can help further enhance financial security, development and stability. It also deepens connectivity and strengthens development of banking, insurance, financial derivatives and trade settlement
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