Mainland-Hong Kong ETF Cross-listing and ETF Connect

In recent years, the connectivity between the capital markets of Mainland China and Hong Kong has continued to deepen, providing investors in both regions with increasingly diverse cross-border investment tools. As an important vehicle within this connectivity framework, the ETF market has attracted significant attention in recent years with the listing of multiple products investing in emerging markets (such as Saudi Arabia and Southeast Asia). These products not only reflect growing market demand for diversified asset allocation but also highlight how product innovations—such as the ETF Cross-listing Mechanism and ETF Connect Mechanism—have driven the opening up of the capital markets.

This article aims to review and compare these two mechanisms and discuss their respective structures, risk profiles and future development trends.

I. The ETF Cross-listing Mechanism

What is ETF Cross-listing Mechanism?

There is currently no official Mainland China law or policy to govern the ETF Cross-listing Mechanism. The latest guidance in Hong Kong the Circular on streamlined requirements for eligible exchange-traded funds adopting a master-feeder structure issued by the Hong Kong Securities and Futures Commission (“SFC”) on 16 May 2024 (the “2024 Circular”). The ETF Cross-listing Mechanism allows fund managers in Mainland China and Hong Kong to launch an ETF feeder (a “feeder fund”) in their respective markets. The feeder fund invests the majority (typically 90% or more) of its assets in a master ETF (the “master fund”) listed in the other market. The master ETF, in turn, invests in its home market or other targeted markets, thereby achieving the effect of gaining indirect cross-border market connectivity.

The mechanism was officially launched on 28 August 2020, when the SFC approved two ETFs for listing on the Hong Kong Stock Exchange (“HKEX”)¹, and the China Securities Regulatory Commission (“CSRC”) simultaneously approved two ETFs for listing on the Shenzhen Stock Exchange (“SZSE”). On 1 June 2021, the Shanghai Stock Exchange (“SSE”) and HKEX introduced another pair of cross-listed ETFs.

How does ETF Cross-listing Mechanism Work?

Under this mechanism:

• Mainland China-listed feeder ETFs mainly use the QDII channel to allocate over 90% of their assets to Hong Kong-listed “master” ETFs;
• Hong Kong-listed feeder ETFs primarily use the QFII channel to allocate over 90% of their assets to Mainland-listed “master” ETFs.

The SFC sets out requirements for master and feeder ETFs in the 2024 Circular. At a high level:

• the master ETF must provide investor protection comparable to a fund authorised by the SFC, have a good compliance record, and maintain sizeable assets under management

• the feeder ETF must be a Hong Kong-domiciled ETF authorised by the SFC, complying with applicable Hong Kong regulations. The management company (which must be licensed or registered for Type 9 regulated activity with a good compliance record) should report to the SFC as soon as practicable if the master ETF ceases to comply with the relevant requirements, and have in place appropriate arrangements to inform Hong Kong investors of material changes to the master ETF.

The 2024 Circular removes specific requirements on fund size and track record for the master ETF that were in place in the previous version of the same circular, as well as permits active ETFs to be used as master ETFs on a case-by-case basis. Notably, under the SFC’s streamlined route, the Mainland-listed master ETF does not need to be authorised by the SFC, enhancing the cost-effectiveness of the arrangement.

Why choose the ETF Cross-listing Mechanism?

For investors, the ETF Cross-listing Mechanism Offers a convenient and efficient cross-border investment tool, particularly for accessing emerging or otherwise hard-to-reach markets such as Saudi Arabia. For fund managers, it simplifies cross-border operations through the use of QDII/QFII channels, while mitigating tracking errors caused by time zone, currency, or market structure differences. For the market, it enhances liquidity and product diversity, marking an important step in advancing two-way capital market openness.

II. The ETF Connect Mechanism

What is ETF Connect?

The ETF Connect Mechanism integrates eligible ETFs listed on Mainland and Hong Kong exchanges into the existing Stock Connect framework, allowing investors to directly trade ETFs listed on the other market through their local brokers—thus creating a two-way direct investment channel.

The concept of including ETFs under Stock Connect was first agreed upon by the CSRC and the SFC in August 2016. After six years of coordination, on 27 May 2022, the two regulators jointly announced their approval in principle². The program officially launched on 4 July 2022, initially covering 87 ETFs (83 A-share ETFs and 4 Hong Kong ETFs).

Subsequently, in April 2024, the CSRC announced an expansion of eligible ETF products under Stock Connect³. The SSE, SZSE, and HKEX accordingly relaxed criteria such as size and weighting requirements. The number of eligible ETFs increased to 241 on 22 July 2024, and further to 265 on 20 January 2025.

How does ETF Connect Work?

According to the SSE Measures for Implementing Shanghai–Hong Kong Stock Connect (2024 Revision) and the SZSE Measures for Implementing Shenzhen–Hong Kong Stock Connect (2024 Revision), ETFs may be included in or removed from the program based on the criteria provided by such measures. A summary of the key criteria is provided below for reference.

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