On 19 April 2024, the China Securities Regulatory Commission (CSRC) announced five new significant measures to further integrate and develop the capital markets in mainland China and Hong Kong. One of them is the expansion of the Stock Connect programme to include both Hong Kong real estate investment trusts and the mainland’s infrastructure securities investment funds (together, REITs).
These measures are expected to optimise the Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect mechanisms, reinforcing Hong Kong’s status as an international financial centre. Next, the CSRC will collaborate with relevant parties, including the Hong Kong Securities and Futures Commission (SFC) and the stock exchanges and clearing companies of both jurisdictions, to implement these policies as soon as possible.
In the authors’ view, the mutual connectivity of REITs is a commendable development. It will expand the investor base and increase trading liquidity for REITs, helping to unlock their potential as public investment products in real estate and infrastructure assets.
Qualification
At present, it is unclear what qualification criteria will be used to include REITs in the Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect. The options could include using the existing standards or developing new ones.
For example, under the current inclusion criteria for stocks in the Stock Connect, only two Hong Kong REITs would qualify. However, if the new criteria for exchange traded funds (ETFs), which require an asset management scale of HKD550 million (USD70.4 million) for southbound trading, are applied, all Hong Kong REITs would qualify.
The authors anticipate that REITs will have their own specific inclusion criteria, with the number of qualifying REITs falling between those that meet the stock and ETF inclusion standards. The authors look forward to further announcements regarding the applicable standards and will continue to closely monitor the development of REIT mutual connectivity.
Business Law Digest is compiled with the assistance of Baker McKenzie. Readers should not act on this information without seeking professional legal advice.
You can contact Baker McKenzie by e-mailing Howard Wu (Shanghai) at howard.wu@bakermckenzie.com
