London Financial Circles Welcome LSE-Shanghai Exchanges plan

Proposals by British Chancellor George Osborne for a link between the Shanghai and London stock markets are being welcomed by London's financial industry, although it is being pointed out that great challenges still exist over the logistics of such a scheme.

This link would make a big difference to Western investors who wish to buy into China's growth story through investing in its stock market, and would give Chinese investors the choice of investing in Western companies.

"Fundamentally you can see the appeal for both London and Shanghai," says Duncan Innes-Ker, regional editor for Asia at the Economist Intelligence Unit.

For China, it will be another step forward in its process of liberalizing its market and its strategy of renminbi internationalization. For London's investors, Chinese shares over the long term still have their appeal despite the recent turmoil in the Chinese stock markets, Innes-Ker says.

"If we look at five years from now, the Chinese equity market will have a more important role in the Chinese financial system. And as a potential connect would take probably years rather than months to set up, the short term volatility Chinese shares have experienced would be of a lesser concern," he says.

Because of China's use of capital account controls to restrict foreign capital inflows into the countries, stocks listed in China are typically not accessible to investors in other markets, but this may not be the case in the long term as China is now in the process of opening up its capital control restrictions.