China's approval of a long-awaited initiative to link stock exchanges in Hong Kong and the mainland city of Shenzhen, allowing foreign investors wider leeway to invest in Chinese shares, got a muted reception today.

China's Cabinet announced late yesterday that preparations to connect Hong Kong and Shenzhen are "basically completed." Charles Li, CEO of Hong Kong Exchanges and Clearing, the city's stock market operator said the link would likely launched by Christmas.

Li said that while awaiting the announcement of a launch date by regulators, the stock exchange would conduct technical preparations and testing, update regulations and raise investor awareness.

The Shenzhen Composite index rose modestly on Wednesday, gaining 0.3 per cent to 2,041.82, while the Shanghai Composite fell 0.2 per cent to 3,103.02. Hong Kong's Hang Seng index added 0.2 per cent to 22,957.78.

Hong Kong is Chinese territory but its financial system is open to foreign investors, while mainland markets are largely sealed off from global capital flows. Beijing has long used the former British colony as an offshore outpost for financial interaction with foreign companies and investors.

A similar measure linking Hong Kong with the mainland's main exchange in Shanghai was launched in 2014. It allows investors from both cities to buy a limited range of stocks from the other side.

Combined, the two mainland stock exchanges have a market capitalisation of USD 7.4 trillion, second in the world after the NYSE Euronext.

Mainland investors appeared unenthused, preferring to use other ways to invest abroad. But the Shanghai-Hong Kong link has proven hugely popular with foreign investors, who bought the maximum number of shares allowed in its first few days.

Average annual turnover in Shanghai rocketed to 133.1 trillion yuan (USD 20 trillion) in 2015 from 37.7 trillion yuan (USD 5.7 trillion) in 2014, according to data on the exchange's website.

"Based on the success of the Shanghai-Hong Kong link, the launch of the Shenzhen-Hong Kong link marks a concrete step toward making Chinese capital markets more law-based, market-oriented and globalized," Premier Li Keqiang, the country's top economic official, said in the statement.

The premier said the move will increase China's international economic links while shoring up Hong Kong's position as a financial center.

Until the launch of the Shanghai-Hong Kong link, only a few foreign institutions were allowed to buy mainland-traded shares in a closely regulated system.

Mainland stock prices soared beginning in late 2014 and then collapsed in mid-2015, triggering a panicked, multi-billion-dollar government share-buying effort to stabilise prices.