Regulators are introducing new concepts to spark market interaction, forming new connections linking investors and the market. Leo Long takes you on an exploration of the opportunities and risks these new regulatory networks may present

China’s regulatory mindset on capital is undergoing an unprecedented metamorphosis. China has linked the two major financial centres of Shanghai and Hong Kong, providing new pathways for the mainland capital market. Market regulations are also getting a revision with the Securities Law at the fore, a signal that ideas that have been percolating in the regulatory sphere have coalesced into an increasingly clear roadmap for future development of the capital market.

The Shanghai-Hong Kong Stock Connect formally opened for service on 17 November 2014. According to a Xinhua report, following the Easter and Qingming holidays this year, a tide of mainland capital surged southbound to invest in the Hong Kong stock market. The southbound connection exhausted its daily quota for two days straight on 8 and 9 April, and Hong Kong shares rose nearly 2,000 points over a three-day period.

Activity on the New Third Board is similarly blazing. According to reports, 2,309 companies had been listed on the New Third Board as of 21 April, and its combined market capitalization has exceeded RMB 1 trillion (US$161 billion). The New Third Board had an annual turnover of RMB 814 million in 2013, and leaped to 15 times its previous turnover with RMB 13.04 billion last year. Already the turnover this year has exceeded RMB 60 billion.

Moreover, the more than one-year suspension of A-share initial public offerings was lifted in January last year. Figures from ChinaVenture reveal that 125 companies listed on the Shanghai and Shenzhen markets in 2014, raising a total of RMB 79 billion.

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