27 February 2020
Premier Li's announcement of a cross-border stock trading program came ahead of a meeting of Hong Kong pan-democratic lawmakers with mainland officials. Photo: Reuters
Premier Li's announcement of a cross-border stock trading program came ahead of a meeting of Hong Kong pan-democratic lawmakers with mainland officials. Photo: Reuters

WEEKENDER: ‘Through train’ arrives amid choppy political waters

The timing of Premier Li Keqiang’s surprise announcement Thursday of the so-called “through train” arrangement that allows investors in Hong Kong and Shanghai to buy stocks traded on each other’s bourses could not be more intriguing.

It came almost on the eve of a meeting between two senior Beijing officials and a group of pan-democratic Hong Kong lawmakers in Shanghai. The meeting on Sunday, aimed at discussing Hong Kong political reform, is being scheduled as part of a fact-finding visit of the city’s lawmakers. With the first round of consultation over universal suffrage for the 2017 Hong Kong chief executive election less than a month away, Beijing is keen to start fostering dialogue with the pan-democrats to avoid an electoral fiasco.

Also on Thursday, student protestors in Taiwan left the Legislative Yuan building in Taipei, ending a 24-day occupation sparked by an attempt by the Kuomintang government to bulldoze its trade pact with the Beijing government through the legislature. But it also marked the beginning of a new phase of uncertainty after the student-led uproar has laid bare the tensions and frictions in mainland-Taiwan relations. It came after relations across the Taiwan Strait have improved since President Ma Ying-jeou led the KMT back to power in 2008.

Against the backdrop of the uneasy ties between the mainland and Hong Kong and Taiwan, the announcement of the long-awaited linkage between the stock markets of Hong Kong and Shanghai, if anything, has sent yet another message of the growing economic bonds between Hong Kong and the mainland.

The opening up of capital flows across the border will create new opportunities for both sides, although it may pose some financial and market risks.

It is therefore no wonder that Premier Li’s announcement Thursday has largely been welcomed by the Hong Kong media and financial experts as a pleasant surprise. Top government officials and the financial sector have hailed the agreement as a big boost to the city for it to maintain its status as a leading financial hub in China and the region.

But the potential risks that may emerge over the linkage of the two bourses are also equally clear. The arrangement, which is expected to be implemented in six months, has offered a profoundly-important case in the process of expanding economic integration between the mainland and Hong Kong and mainland and Taiwan.

Ming Pao said in an editorial yesterday that the implications of the “through train” deal far exceed the objectives of mutual influence and promotion of the two stock markets. It said the software systems and arrangements for the scheme’s implementation would touch upon a host of issues including culture and practices and even ideology and restraints over the exercise of public powers.

Advising that details should be left to experts from both cities, it said: “One principle that should become reference is that advanced (systems) should not be replaced by the outdated (systems).” The newspaper underlined the importance of Hong Kong’s regulatory system and design, which it said “should not be easily compromised”.

It warned of catastrophic shock if the fairness of the stock market is compromised by lowering the regulatory standards. “If resolved, this new subject under ‘one country, two systems’ will bring about positive effects in interactions between Hong Kong and the mainland.”

The editorial’s positive note along with some cautionary remarks about the cross-trading deal says something about the growing complex, if contradictory, feelings in Hong Kong about the city’s increasingly close ties with the mainland.

There are fears that the price to pay for seeking a bigger slice of China’s huge economic pie may far exceed the economic benefits to be gained from deeper economic and financial cooperation such as the Shanghai-Hong Kong bourse deal.

Aside from economic and financial risks, the process of economic integration has become increasingly complicated and sensitive in view of the lingering political frictions between the mainland and Hong Kong and Taiwan.

In Taiwan, the KMT government has accepted students’ demand for a legislation that aims to set up a supervision mechanism about any pact with the mainland government. Legislative hurdle aside, the student-led protest looks set to make it more politically difficult for President Ma to push ahead his conciliatory policy towards the mainland. A major revision of Ma’s mainland policy seems to have become inevitable.

In Hong Kong, the “through train” deal has and will be cited by top Beijing and Hong Kong officials as another example that illustrates the central government’s full support for bolstering the city’s status as an international financial hub.

On the economic front, it will help dilute the negative impact on Hong Kong caused by Beijing’s recent surprise decision not to host an APEC ministerial meeting in the city originally scheduled for autumn.

Politically, it is still a piece of positive news in the midst of strained mainland-Hong Kong relations, which are likely to turn more uncertain because of the row over political reform. A group of activists calling themselves Occupy Central may launch a movement to blockade Hong Kong’s Central business district if their demands for genuine universal suffrage are ignored by Beijing.

While praising the Shanghai-Hong Kong deal in its editorial yesterday, the pro-Beijing Wen Wei Po lost no opportunity to attack the Occupy Central movement, saying it would paralyze the operation of the city’s financial center and undermine its status as an international hub.

Seven years after former premier Wen Jiabao put a brake on the then one-way “through train” for mainland investors to buy Hong Kong stocks, the revised two-way Shanghai-Hong Kong bourse deal was put on track amid shifting political and economic landscape in Greater China.

Chris Yeung is deputy chief editor of the Hong Kong Economic Journal. This column appears every Friday.

– Contact the writer at [email protected]


He was editor-at-large at the South China Morning Post and, more recently, deputy chief editor of the Hong Kong Economic Journal.