Hong Kong-China Stock Connect Scheme Stumbles at the Start

By Sam Willie

Reuters reports a delay in the opening of the much-anticipated “Stock Connect” scheme between the Hong Kong and Shanghai stock exchanges. The scheme was meant to provide investors in Hong Kong and mainland China direct access between markets, and was considered an impressive move by the Chinese government in their efforts to liberalize their equity markets. It is thought that a lack of regulatory approval and a disagreement over capital gains tax has caused this delay. Hong Kong does not charge capital gains, whilst the mainland has a 10% tax, and a further 5.6% tax on business profits. Even when open, it is unlikely that investors will flock to “Stock Connect” until they know the true extent of their tax liability.