BEIJING (TIP): China has linked up the two stock markets of Shanghai and Hong Kong, which will make cross border investment possible for people living in Mainland China and in Hong Kong. They were not permitted to do so earlier. But the real catch lies beyond the usual stock trading. China is trying to push forward its agenda of internationalizing the Yuan. Hong Kong and other overseas investors will now have to buy the Chinese currency in order to invest in the linked market. Worried that market behavior might go out of hand, authorities have imposed a ceiling on turnover amounting to $2.2 billion for investors in Hong Kong. The ceiling in the case of investors in Mainland China has been set at $1.8 billion.

The linking of stock markets will take the growth of offshore renminbi business business in Hong Kong to “new heights”, Norman Chan, chief executive of Hong Kong Monetary Authority, said. China has taken several measures including offering soft loans and aid to several countries in its own currency to make Yuan a widely used international currency. In turn, it offers a stable exchange rate because it is tightly controlled by the government. The official media quoted Lin Caiyi, chief economist with Guotai Junan Securities, saying that the linked market will act as a channel for the yuan to flow from the Mainland China to Hong Kong, be invested in the offshore market and flow back to the Mainland. This is essential for China because there is a lot more international currency trading in Hong Kong than in Shanghai