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Investors in Shanghai's stock market will for the first time on Monday be able to invest directly across the border in Hong Kong's Hang Seng stock exchange and vice versa.

The new system, called the Shanghai-Hong Kong Stock Connect, will give foreign investors direct access to Shanghai's so-called A shares, including many blue chip, state-owned companies.

China has strict currency controls, so it can manage both the value of its currency, the renminbi, as well as protect its economy. The government will cap total daily transactions between the Shanghai and Hong Kong exchanges to a little more than $2 billion in each direction.

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The Two-Way

In China, Dreaded Process Of Getting Visa To The U.S. May Get Easier

Jun Qian, who teaches at the Shanghai Advanced Institute of Finance, says the change is inevitable as China tries to build an efficient financial system and internationalize the renminbi.

"Money has to come in and out of China much more freely than now," says Qian. "It's going to come gradually and the Shanghai-Hong Kong Connect is a little pipe in that opening."

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Capitalism Is Making China Richer, But Not Democratic

One reason China wants to open a pipe is to help bring order to Shanghai's stock market, which, years ago, one Chinese economist described as being "worse than a casino."

The Shanghai market is driven by insider trading and speculation, says Oliver Rui, a finance professor at Shanghai's China Europe International Business School. Therefore, it doesn't serve a stock exchange's crucial function: channeling investment to the most promising and innovative companies that create value and help drive an economy.

Rui says the hope is foreign institutional investors will bring their expertise to Shanghai's market and help raise investing standards to international levels. Rui says people's future living standards here may depend on it.

"We are still facing the risk of falling into a middle income trap," Rui says, referring to the fear that China's growth will stall and the vast majority of the country will never become wealthy. "Without a well-functioning capital market, we may not be able to become a real, developed country."

By permitting Chinese to invest across the border in Hong Kong, China's government is permitting more renminbi to circulate globally. Over time, that will help China internationalize its currency and eventually help establish it as a reserve currency.

China's leaders want more global influence on everything from the pricing of commodities to a say in how the rules of world finance are written. To that, Qian says, other big economies respond this way: "China, sorry, but basically your financial system is closed. It's separated. You're not a real member of the global community."

China hopes as the renminbi spreads around the world, the country's financial power will more closely reflect the size of its economy.

Hong Kong

China

Investors in Shanghai's stock market will for the first time on Monday be able to invest directly across the border in Hong Kong's Hang Seng stock exchange and vice versa.

The new system, called the Shanghai-Hong Kong Stock Connect, will give foreign investors direct access to Shanghai's so-called A shares, including many blue chip, state-owned companies.

China has strict currency controls, so it can manage both the value of its currency, the renminbi, as well as protect its economy. The government will cap total daily transactions between the Shanghai and Hong Kong exchanges to a little more than $2 billion in each direction.

Related NPR Stories

The Two-Way

In China, Dreaded Process Of Getting Visa To The U.S. May Get Easier

Jun Qian, who teaches at the Shanghai Advanced Institute of Finance, says the change is inevitable as China tries to build an efficient financial system and internationalize the renminbi.

"Money has to come in and out of China much more freely than now," says Qian. "It's going to come gradually and the Shanghai-Hong Kong Connect is a little pipe in that opening."

Parallels

Capitalism Is Making China Richer, But Not Democratic

One reason China wants to open a pipe is to help bring order to Shanghai's stock market, which, years ago, one Chinese economist described as being "worse than a casino."

The Shanghai market is driven by insider trading and speculation, says Oliver Rui, a finance professor at Shanghai's China Europe International Business School. Therefore, it doesn't serve a stock exchange's crucial function: channeling investment to the most promising and innovative companies that create value and help drive an economy.

Rui says the hope is foreign institutional investors will bring their expertise to Shanghai's market and help raise investing standards to international levels. Rui says people's future living standards here may depend on it.

"We are still facing the risk of falling into a middle income trap," Rui says, referring to the fear that China's growth will stall and the vast majority of the country will never become wealthy. "Without a well-functioning capital market, we may not be able to become a real, developed country."

By permitting Chinese to invest across the border in Hong Kong, China's government is permitting more renminbi to circulate globally. Over time, that will help China internationalize its currency and eventually help establish it as a reserve currency.

China's leaders want more global influence on everything from the pricing of commodities to a say in how the rules of world finance are written. To that, Qian says, other big economies respond this way: "China, sorry, but basically your financial system is closed. It's separated. You're not a real member of the global community."

China hopes as the renminbi spreads around the world, the country's financial power will more closely reflect the size of its economy.

Hong Kong

China

The global economy rolls along more smoothly when it's not riding a unicycle. It needs additional wheels for momentum and stability.

That is, in effect, what Treasury Secretary Jack Lew is telling leaders of other advanced nations.

In a get rolling speech Wednesday to the World Affairs Council, Lew said the U.S. economy is moving at a good pace these days but needs support from the flat economies of Japan and the European Union.

Other countries cannot "rely on the United States to grow fast enough to make up for weak growth in major world economies," he said.

When Europe and Japan get too weak, demand drops for made-in-America products and services, and the U.S. dollar gets too valuable, making life tougher for U.S. exporters.

"The world is stronger if we all take steps to bolster domestic demand," Lew said.

He spoke in Seattle, where he was doing a warm-up act ahead of the main event this weekend in Australia. In Brisbane, he will join President Obama and other world leaders for a G-20 summit, focused on spurring global growth.

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Lew says the United States has a huge stake in the success of its first-world trading partners.

"The United States exports more than $2 trillion of goods and services to the world," he said. "It is very much in our economic and national interest when the rest of the global economy is growing."

The Obama administration is in a strange position. Just last week, it suffered big political setbacks in domestic elections. But on the world stage, Obama leads the most impressive economy. In the most recent quarter, this country grew at 3.5 percent — a very robust pace for a mature economy.

In the United States, the stock market is booming, budget deficits are melting away, corporate profits are breaking records and the unemployment rate is falling, down to nearly half the level set five years ago.

U.S. success shows "the resilience and determination of the American people," Lew said. "It also reflects the ease of starting businesses, our highly competitive product markets, and the ability to reap rewards from entrepreneurship."

Meanwhile, Japan's economy is stuck, with its inflation-adjusted growth rate running at less than 1 percent over the past decade. Europe may be on the brink of its third recession in six years.

Lew says that to grow, countries need a "comprehensive policy approach" that involves not only better fiscal and monetary decisions, but "structural" changes. When he talks about "structure," he's referring to the policy frameworks that hold back growth.

So, for example, in Japan, structural reform would mean changing laws that prevent young immigrants from replacing retired workers; helping women with children stay in the workforce and allowing more competition among companies. In Europe, it would mean making the banking sector less secretive.

In addition to speaking in Seattle, Lew talked with NPR's Robert Siegel, host of All Things Considered. Lew said that while he is offering advice to other countries, he knows this country still has many of its own problems to solve.

For one thing, "wages are not growing," he said. To help fix that, Congress should raise the federal minimum wage of $7.25 an hour, he said. For low-income families, "the minimum wage makes a big difference," he said.

In addition, Congress should start spending more on rebuilding infrastructure, which would boost construction jobs, and pass laws to reform the tax code and increase trade, he said. "We still have work to do," he said.

Two bills that would authorize building the controversial Keystone XL pipeline will soon come to a vote in Congress, as their sponsors — Sen. Mary Landrieu, D-La., and Rep. Bill Cassidy, R-La. — head toward a runoff election next month to decide who will win the Senate race.

NPR's Debbie Elliott reports:

"On the Senate floor, Landrieu called for action on the Canada-to-Texas pipeline project, saying, 'I believe with a push we could actually get the votes that we need to pass the Keystone pipeline.'

"Soon after, Republican leaders in the House scheduled a vote Thursday on a Keystone bill sponsored by Landrieu's rival, Cassidy.

"The two face off in a Dec. 6 runoff. The pipeline is a key issue in Louisiana, where the oil and gas industry dominates."

Energy company TransCanada's Keystone XL pipeline would carry tar sands oil from Canada to Texas; it has been a polarizing issue, pitting those who say it would create thousands of jobs against environmentalists who say tar sands oil is too expensive and toxic to refine. Where one side says the plan would bolster the energy industry, the other says it would increase greenhouse gases.

Wary landowners along its path have also spoken out, complaining that the pipeline would disrupt their property and damage farms — particularly if it ever sprang a leak. As the Two-Way has reported, "In February, a Nebraska judge struck down a 2012 law that allowed part of the pipeline to run through the state."

The AP notes that the Obama administration isn't welcoming news of a vote on the matter:

"While the White House stopped short of directly threatening a veto, spokesman Josh Earnest said President Barack Obama takes a 'dim view' of legislative efforts to force action on the project. Earnest reiterated Obama's preference for evaluating the pipeline through a long-stalled State Department review."

From NPR's StateImpact project comes this background:

"The Keystone Pipeline already exists. What doesn't exist fully yet is its proposed expansion, the Keystone XL Pipeline. The existing Keystone runs from oil sand fields in Alberta, Canada, into the U.S., ending in Cushing, Okla.

"The 1,700 new miles of pipeline would offer two sections of expansion. First, a southern leg would connect Cushing, where there is a current bottleneck of oil, with the Gulf Coast of Texas, where oil refineries abound."

midterms 2014

Rep. Bill Cassidy

Sen. Mary Landrieu

Keystone XL Pipeline