Britain and China agreed on Monday to a series of initiatives ranging from an expanded currency swap agreement, Chinese investment in British nuclear power, and a feasibility study for a scheme to connect the London and Shanghai stock markets.
Speaking on the second of a five day visit to China, Chancellor George Osborne said Britain would be Beijing’s “best partner in the West”.
He said the recent market turmoil in China was no reason for Britain not to engage more deeply with the world’s second-largest economy.
Osborne wants more Chinese investment in Britain, and has championed London’s bid to become the dominant centre for offshore yuan trading in Europe. He said connecting the London and Shanghai stock markets would benefit Britain in the long run.
“It’s in our interests that we have deeper and more mature financial markets across the world,” Osborne told reporters, when asked whether a stock market link would put Britain at risk of contagion from future bouts of volatility in China.
“Britain should run towards China. We should be doing more business with China. We should be better connected to the Chinese economy, our financial institutions should establish stronger links.”
The announcement follows the November launch of the Shanghai-Hong Kong Connect scheme, which allows foreigners to trade Shanghai shares from Hong Kong, and domestic Chinese investors to trade Hong Kong shares from Shanghai.
Since its launch, that scheme has suffered dwindling investment flows in both directions, with less than half of an already small quota utilised.
Still, linking Shanghai to the London Stock Exchange would mark a further significant step in the opening up of China’s markets, potentially allowing domestic Chinese access to a wide range of British and European stocks.
Any link between the two markets would have to overcome significant hurdles, however, including differences in time-zones, and regulatory challenges.