Chancellor George Osborne is pressing ahead with plans to connect the British and Chinese stock exchanges despite heightened market fears over volatility in the Chinese markets.
Osborne used a speech in Shanghai last September to announce a new “feasibility study” into connecting the UK and Chinese markets, writing at the time in City A.M. that he wanted to “cement London’s position as China’s partner of choice as it raises finance on international markets”.
A government spokesperson declined to comment yesterday, but a London Stock Exchange representative confirmed to City A.M. that the feasibility study was well underway, with a working group including both British and Chinese representatives engaged in an “active and ongoing process”. City A.M. understands no date has been set for revealing the study’s findings.
Confirmation that the government is pushing for deeper financial ties with China comes as fears of an emerging markets slowdown, a weak yuan and tumbling Chinese stocks continue to wreak havoc on global markets.
Just last week, Osborne warned that a “dangerous cocktail of new threats” put Britain’s growth outlook in peril. But he used the warning to defend his efforts in China, saying: “Our determination to be China’s strongest partner in the west is opening up new markets for our businesses and bringing new investment and jobs to our shores”.
City experts, however, have questioned whether Osborne is taking the right approach. George Magnus, an associate at Oxford University’s China Centre and a senior adviser to UBS, told City A.M. that the chancellor’s message that “we need to latch our canoe on to the Chinese vessels… does not look so smart these days”.
“The idea that we have to get into bed with China because it’s the hottest economic property in town, that is not going to wash well.”
Jason Hollands, managing director at BestInvest, told City A.M. that proposals to link the two countries’ stock exchanges “might well raise eyebrows” in light of recent market movements.
“The Shanghai market is something akin to a casino, where the house, the Chinese state, attempts to step in and rig the game,” Hollands said. “Some may question whether it makes sense to allow Chinese investors with improved access to trading UK stocks and of course, one wonders whether such a stock connection could really work.”
IG analyst Joshua Mahony agreed: “Possibly the last thing you want to do right now is to have your stock exchange and the movement within your stocks linked to what’s happening in China."
"It feels like they don’t know what decision they’re going to be making one day to the next,” Mahony said of the Chinese regulators.