China’s ‘Through-Train’ Test

China’s experiment with letting mainlanders invest in the Hong Kong stock market, launched last August and dubbed the “through train”, has yet to take off. From the Wall Street Journal:

When China’s foreign-exchange regulator announced its trial plan on Aug. 20 last year, it sent the benchmark Hang Seng Index soaring some 55% in just 10 weeks. Investors dreamed of a massive inflow of cash-rich mainland investors, who had been fueling a bull run in the Shanghai and Shenzhen share markets.

But not long after the announcement, signs already were apparent that Beijing regulators were having second thoughts about the impact of their plan. Authorities expressed concerns over the possibility that the through train would drain too much money from mainland exchanges, and that unsophisticated mainland Chinese investors could suffer big losses in the rough and tumble of global markets.

Yet since then, central-government leaders have grown increasingly vocal about another pressing concern: too much money flowing into China, and not enough flowing out. As foreign reserves hit a record high of $1.81 trillion at the end of June, up from $1.68 trillion in March, Beijing blamed speculative inflows and vowed to more closely monitor foreign companies and investors doing business in China. A program like the through train would narrow the fund-flow gap by providing an outlet for capital bottled up in the domestic markets by Beijing’s strict capital-control regime.


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