The Shanghai Stock Exchange plans to launch China’s first exchange-traded fund that tracks overseas stock indexes later this year, says SSE president Zhang Yujun.

The first ETF will track the H shares of Chinese companies listed in Hong Kong, Zhang said, but the timing and size of the launch will depend on market conditions.

The Shanghai exchange is working closely with the Hong Kong stock exchange to prepare for the introduction of the ETF, Zhang said. He said the exact timing of the launch and the size of the ETF are still under consideration.

In a joint statement, the two exchanges said they would gradually extend their co-operation to the development of ETFs on bonds and gold, as well as cross listings.

Zhang said the Shenzhen Stock Exchange is also considering launching an ETF that tracks Hong Kong’s benchmark Hang Seng Index. China’s two bourses have for some time been seeking to cross-list ETFs in Hong Kong and China.

So far, China’s ETFs, which track only domestic markets, haven’t gained much traction among investors. Only seven ETFs are traded on the Shanghai and Shenzhen stock exchanges, in a market that is a lot less active than the mainland’s yuan-denominated A-share market.

Chinese investors are no strangers to H-share companies, as most of the firms also have A-share listings on the mainland’s domestic bourses.

However, Hong Kong’s H shares, which can be freely traded by international investors, have been trading at significant discounts to their A-share counterparts, which would make them particularly attractive to Chinese investors.

The joint announcement came four days after Charles Li took over as chief executive of HKEx, becoming the first Chinese mainlander to run the Hong Kong exchange. He has said that one of his key goals is to strengthen ties between the exchange and the mainland, the source of the majority of the $27bn of initial public offerings in Hong Kong last year.

Li, who was heading China operations at both Merrill Lynch (NYSE:AMO ) and JPMorgan (NYSE:JPM ), will help the exchange deepen its ties with Beijing.

Hong Kong Exchanges & Clearing and the Shanghai Stock Exchange have also agreed to strengthen ties on operational issues and information technology. The move will allow the two bodies to better regulate companies and securities listed in both cities and protect shareholders’ interests.

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