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Sole user of London-Shanghai exchange link continues use despite 'suspension'

Huatai Securities Co. Ltd. continues to trade as usual via the Shanghai-London Stock Connect link despite reports that China has effectively suspended the scheme to hit back at the U.K. over its stance on the Hong Kong protests.

S&P Global Market Intelligence was unable to confirm the extent of the suspension, as LSE declined to comment, while the Shanghai Stock Exchange did not reply to a request for comment.

Huatai, a partly state-owned brokerage, is the first and so far only company to make use of the scheme that allows eligible companies listed in London and Shanghai to issue a depository receipt on the other exchange that can be traded under local rules. It raised $1.54 billion selling depository receipts on the LSE last June.

The reciprocal arrangement was intended to encourage cross-border investment and allow Chinese firms to gain access to western investors and western currencies, while U.K.-listed firms could gain access to Chinese investors.

Huatai was due to be joined last month by another Chinese company, SDIC Power Holdings Co. Ltd., but that deal was postponed at short notice along with that of China Pacific Insurance (Group) Co. Ltd., which was expected to have made use of the link in the first quarter of 2020. Reuters said its sources had said the U.K.'s stance over the protests in Hong Kong was the reason. The Financial Times reported that an official at the Shanghai Stock Exchange said Stock Connect had been postponed.

LSE CEO David Schwimmer pointed to the exchange's links with Shanghai as a reason for his rejection of the £32 billion bid for LSE from the Hong Kong Stock Exchange last autumn. LSE is now concluding a $27 billion deal with financial data firm Refinitiv US Holdings Inc. Schwimmer described the "mutually beneficial partnership" with Shanghai as the LSE's preferred and direct channel to access opportunities in China, ahead of any tie-up with Hong Kong.

Unrest in Hong Kong

Unrest in Hong Kong began last summer with calls to scrap a now-suspended extradition treaty, but has widened to protest against the way China administers Hong Kong. Under the 1997 agreement between the U.K. and China, Hong Kong will retain certain rights as part of the "one country, two systems" deal set to expire in 2047.

On Jan. 2, HSBC Holdings PLC, the territory's biggest bank, was forced to close branches and suspend ATMs in Hong Kong after protesters accused the lender of helping police close an account used to raise funds for demonstrators.

Last month, U.K. Foreign Secretary Dominic Raab called on China to open dialogue with Hong Kong protesters to address their "legitimate concerns." China's state broadcaster also cut an interview with the British ambassador that had covered topics including Hong Kong.

London's stock markets had a slow year for listings with just 34 companies listing in 2019, the lowest since 2009, which was a 62% drop on the previous year, the FT reported. Indeed, more companies left the LSE's main market than joined it.