The long-awaited London-Shanghai Stock Connect project launched on Monday this week means that companies listed in Britain will be able to sell shares in China, and Shanghai-listed companies can raise new funds via London's stock market.

“Stock Connect is a ground-breaking initiative, which will deepen our global connectivity as we look outwards to new opportunities in Asia,” said UK Chancellor of the Exchequer Philip Hammond.

The new Stock Connect is the latest move for China and the UK to enhance their cooperation in the financial sector, and for China to continue to open up the country's financial sector to the rest of the world.

Further access to China's financial market

It will be the first time foreign companies are able to list in the Chinese mainland, the UK government said in a statement.

“With the development of the Shanghai-London stock connection scheme, foreign companies that have financing demands will be able to use it to raise funds in China,” Fang Xinghai, vice chairman of the China Securities Regulatory Commission, said at the annual Lujiazui Forum last week.

Foreign companies and investors didn't have the access to China's stock market because of the inconvertibility of the yuan. Under the new scheme, investors in London and Shanghai can trade through Global Depositary Receipts (GDR), which represents an ownership of ordinary shares of a company that are held by a custodian bank – allowing foreigners to buy stocks of a company in another country without the risks associated in investing in a foreign stock directly.

“The listing of DR shares by British firms also offers (Chinese) mainland investors new options to diversify their risks,” said Zhang Yulong, chief strategy analyst with China Securities.

(With input from Reuters)