|Bilateral, multilateral and regional linkages between stock exchanges generate
increased sources of funds, investor return and product choice. Such
associations can also lower transaction costs in both initial listing and
subsequent trading, increase liquidity more generally in the secondary market
and enhance investor protection and confidence in the stability and reputation
of the market and the status of companies listed on the market. This thesis
argues that the integration of the stock markets between The Special
Administrative Region of Hong Kong ("Hong Kong") and the People's
Republic of China (CTRC) is therefore a desirable objective and investigates
how a more successful and substantial degree of integration could be achieved
in this area.
Integration, in particular, requires harmonization of laws and regulations. In
1993,H shares issued by PRC companies were first allowed to cross-list on the
Hong Kong Stock Exchange. This listing was made possible by the
introduction of a new set of legal and operational rules promulgated in both the
PRC and Hong Kong.
This thesis expounds four models of integration, the H Share Model, the
System Harmonization Model, the Mixed Harmonization and Mutual
Recognition Model, and the Full Harmonization Model and argues that H share
regulations are an effective way to further integration despite problems
inherited from the PRC's 'pre-open door' policy.
In considering other potential models, the European Union and the United
States capital market are also considered as potential models for further
integration of the PRC and Hong Kong stock markets despite the inherent
limitations of the latter model.
It is also proposed that enhanced institutional support can be used as an
effective means of accelerating the integration process. Investigating both the
feasibility and possible implementation of market integration within an
appropriate institutional framework ensures an autonomous, legal and
independent environment separate from the political realm.