Correlations of China’s stock market with the global are the lowest among major markets and not increasing in the last two decades. Moreover, unlike other markets, China is not vulnerable to financial contagion of global market. Therefore, China’s stock market can
provide valuable diversification benefits for international investors. Using firm-level data, we find that A-share stocks are more connected with global market if they are held by Qualified Foreign Institutional Investors (QFII), more connected with real economy, and less policysensitive. Last, we show that disconnection with real economy and government intervention are more important than market openness in explaining the isolation of China’s stock market. 

JEL classification: F3; G01; G12; G15.
Keywords: China; Stock market; Contagion; International diversification; Policy sensitivity.​