With a bang of gongs in Shanghai and Hong Kong, China opened up the country's $4.2-trillion capital markets to foreign investment in what is viewed as one of the largest Chinese financial developments in recent years.
Through what is called the Shanghai-Hong Kong Stock Connect, investors on either exchange now can buy and sell stocks on the other, giving foreigners access to ownership in Chinese companies and citizens the ability to invest in foreign stocks in Hong Kong.
"I think it's a milestone in opening up China's capital accounts as well as capital markets," said Wang Tao, an economist at the Beijing office of Swiss financial giant UBS.
Foreign investors took quick advantage of the opening Monday to buy stocks in Chinese companies worth the U.S. equivalent of $2.1 billion, the daily limit imposed on such transactions.
China, which has built the world's second-largest economy, had kept its financial system largely walled off from the rest of the world. Capital transfers across borders were limited, and foreign investors could buy Chinese shares only under a very restricted program.
Now, under the new system, 90% of Shanghai's total market capitalization became open for business internationally and trading was allowed for the equivalent of as much as $3.8 billion in cross-border transactions.
On Monday, most of those transactions saw currency flow into the mainland, but to the south.
"Northbound [trading] is many times higher than southbound. That means Chinese investors are not blindly buying Hong Kong stocks," Jackson Wong, associate director at Simsen International Financial Group, told news agency Agence France-Presse. "It's not a bad sign."
Monday's trading pattern had been expected.
Last week, the Hong Kong Monetary Authority, the territory's de facto central bank, lifted a daily cap on converting Hong Kong dollars to China's renminbi last week to enable the stock-market link, easing the use of the currency.
Hong Kong investors had exhausted their daily quota of trades by 2 p.m., but only 17% of Shanghai's quota had been used by the end of the trading day.
Among the criteria for trading through the Stock Connect is that Chinese investors meet a minimum asset requirement of $82,000 to be able to trade on the Hong Kong exchange, thus forming one of the largest stock markets in the world with a combined market cap of $5.6 trillion, according to British banking firm HSBC Holdings.
Both the Shanghai composite index and Hong Kong's Hang Seng index rose after the opening bell, but both closed down slightly by day's end.
Other Stock Connect restrictions aim to hold on to government control of capital. Investors also cannot buy and sell a given stock on the same day. Combined with heavy demand to get into China's markets, these quotas provide a sharp limitation.
Beijing granted an initial cumulative quota of $41 billion for trading Hong Kong stocks, while nearly $49 billion was granted for Shanghai — equivalent to only 1% of the total capitalization of each market. Daily allowances are at $1.7 billion and $2.1 billion, respectively.
Nevertheless, Stock Connect is considered a massive change in how China regulates its financial market and could lead to further opportunities.
"If it proves to be a good experiment, then they could easily increase the quota. It will be even easier to invest in China," Wang said.
Silbert is a special correspondent in Beijing.