Plans to establish a dedicated capital markets connection between London and China were announced by Chancellor George Osborne during a trade mission to the Chinese mainland.

"The mutual benefits of connecting our markets are clear - increased access to international capital for Chinese firms, unparalleled investment opportunities for Chinese and international investors, enhanced stability for both markets and efficient allocation of resources - acting as the basis for sustainable economic growth," he said during a speech at the Shanghai Stock Exchange. "So I want to see our stock markets in London and Shanghai formally connected, with UK firms raising funds from Chinese savers, and Chinese firms listing in London."

The London Stock Exchange has already established a route for Hong Kong firms to list on its market, welcoming BOCI Securities Limited as its first member in July.

Since January 2014, the LSE has been working on establishing a firmer relationship with Greater China: admitting ten new Chinese companies, issuing 35 new RMB bonds and listing the first ETF in Europe denominated in RMB.

A direct trading hook-up would further cement the relationship, opening up a major trade route to Europe's capital markets for companies operating in the world's fastest growing economy.

News of a possible link comes just 10 months after the opening of the Hong Kong-Shanghai Stock Connect platform, establishing HKEx as the only exchange with a direct link to the Chinese mainland. However, recent market volatility has contributed to a slump in trading volume, and the prospect of a London gateway will further erode Hong Kong's status.

Speaking to the South China Morning Post, Louis Tse Ming-kwong, director of VC Brokerage said: "If London and Shanghai launch a stock connect, Hong Kong will lose its advantage as the only market with a link to Shanghai. The proposal is a threat to Hong Kong's market."