Wang Kang, a 32-year-old sales director and a veteran investor in Shanghai, is proud of a 300% return on his investment in Chinese stocks last year. However, with his stocks now worth $7,500, he does not invest in Hong Kong. “The amount of my investment is too small and the paperwork to open an account there is troublesome,” he said. Besides, what’s to complain about a 300% return?

Investors like Wang are too easily overlooked when predicting the impact of the new policy that is soon to be launched. On August 20, China’s State Administration of Foreign Exchange announced that mainland residents may invest directly in Hong Kong, clearing the barrier that prevents Chinese investors from investing in overseas markets for the first time. The program will begin with a pilot program in Tianjin possibly in September.

The market responded strongly. After the announcement, Hong Kong Hang Seng Index surged 12% last week, and closed at 23,984, up 4.63% on August 31, driven by the expectation that the new policy will open the flood gate of China’s excess liquidity to rush into Hong Kong and push up prices.

Chinese companies that list both in Hong Kong and Shanghai, such as Bank of China and Industrial & Commercial Bank of China (ICBC), experienced strong gains in their H-shares (shares listed in Hong Kong) because they are at a discount to their A-share (shares listed in Shanghai) counterparts. ICBC’s H-share closed at $5.08, up 3.5%, and A-share closed at RMB 6.84.

Some people have expressed concerns that the policy would stir up volatility in Hong Kong, not without legitimate reasons. But other factors should not be overlooked, such as investors like Wang and others who fear the risk of entering a new market or who simply do not have extra cash. Moreover, the policy only applies to individuals, not institutional investors. Therefore, the outcome of the new policy is far from certain yet.

The real significance of the policy, though, is that it eliminates the cap of the amount of foreign currency an individual can purchase every year. Residents are allowed to purchase unlimited foreign currencies (currently just Hong Kong dollars) in their investing account, not subjected to the annual limit of $50,000 previously. This means that RMB and Hong Kong dollars are freely interchangeable in the equity market, possibly the first step toward a free-floating RMB.

Indeed, this policy has two meanings: it opens the gates of China’s equity market, and its currency market. From this perspective, the gate is opening, slowly.