The Shanghai-Hong Kong Stock Connect, which formally opened on Monday, is not only a giant step toward opening the Chinese mainland's capital account and financial market, but also a breakthrough in its efforts to open up further to the outside world.

Under such a program, investors in Shanghai and Hong Kong had been allowed to trade and settle shares listed on each other's markets through the exchange and clearing houses in their respective markets. For years the mainland has preferred direct investment to portfolio investment when it came to opening its capital account. Under such a policy, both inbound foreign direct investment and outbound direct investment by Chinese enterprises have enjoyed a high degree of liberalization.

But a rather strict regulatory regime was imposed on cross-border portfolio investment in both directions. Statistics show that the mainland's outbound direct investment reached $609.1 billion by the end of last year, more than twice its outbound portfolio investment of $258.5 billion. And its inbound direct investment reached $2.3475 trillion, in sharp contrast to $386.8 billion worth of portfolio investment.

When the mainland's economic aggregate was small, its financial market not fully developed, and the authorities lacked enough regulation capability, that practice did help maintain its macroeconomic stability.

But as it became the world's second-largest economy, China's financial market developed substantially. Its strengthened financial regulation capability also means that it is ready to lift the lid off some portfolio investment restrictions. And the Shanghai-Hong Kong Stock Connect is expected to help the marketization of the mainland's A-shares and facilitate further reforms in financial sector. The move is also expected to help raise the transparency of the mainland's cross-border capital flow and create better conditions for the regulation of such capital flows and the entire macro-economy.