China's central government has approved plans to link trading between the Shenzhen stock exchange and the Hong Kong market, it said Tuesday, paving the way for the long-awaited reform. The Hong Kong stock exchange said it expected preparations for the launch of the mechanism to be finished in four months' time, but that a start date would be subject to regulatory approval. China launched a landmark "stock connect" between the bourses of Shanghai and its special administrative region of Hong Kong in late 2014, opening up its closeted share market to the outside world and giving foreign investors access to Chinese companies not quoted elsewhere.
Mainland China's second stock exchange, in the southern city of Shenzhen, was due to follow last year, but the launch was delayed by a market rout. The powerful State Council - or cabinet - has given its high-level blessing to the scheme, it said in a statement on its website Tuesday.
"The State Council has approved the implementation proposal for the Shenzhen-Hong Kong Connect," Premier Li Keqiang was quoted as telling a meeting of the body. He added preparation work was "basically completed" but gave no date for the launch.
Hong Kong exchange chairman C.K. Chow said the link-up would "open up another mainland market for international investors and strengthen the mainland's links with Hong Kong" in a statement late Tuesday. The exchange's chief executive Charles Li said one of the aims was to build Hong Kong into an offshore wealth management centre for mainland investors.
The move demonstrates the "continuous commitment" of the Chinese government towards financial reforms, said economist Aidan Yao of Axa Investment Managers. Yao said it was "an efficient way of liberalising the onshore financial market". A report from Macquarie Securities said the launch would provide international investors access to China's "most dynamic equity market".