Beijing - China's Ministry of Finance said on Friday it will waive a capital-gains tax for foreigners buying mainland Chinese stocks.
Mainland Chinese investors buying Hong Kong shares will also be exempt from paying income tax for three years, according to a statement on the Ministry of Finance's website.
The move came ahead of a scheduled link between stock exchanges in Shanghai and Hong Kong, announced on Monday.
The plan is to open the previously highly protected Chinese stock market to more foreign investors.
The Shanghai Hong Kong Stock Connect will start November 17, the exchanges announced.
It will allow investors in Hong Kong and Shanghai to trade each other’s listed shares, up to a daily total of €23.5bn yuan (€2.8bn) across the border.
The programme will bring about "the biggest rebalance of capital in the world," Hong Kong Exchanges and Clearing chief executive Charles Li Xiaojia said.
China is under pressure to ease capital controls and encourage outward investment to deal with serious financial imbalances, where huge inflows of capital have fuelled asset price inflation.
China wants to build Shanghai as a global financial centre and has developed a free-trade zone in the port city.
Hong Kong, a financial hub and semi-autonomous special administrative region, has long acted as a gateway to doing business in China.
Analysts expect that the cooperation could be extended in the future to the stock market in the southern Chinese city of Shenzhen.