I think it's just supply and demand differences between the two groups of buyers/sellers. Since there's no way to arbitrage the two classes, they're really different securities with mostly different buyers and sellers. For whatever reason the outside China pool might really like one stock that's not super popular inside China and vice versa. Even if you took something as benchmark as U.S. Treasury bonds and created an inside and outside U.S. version with no way to arb the two you'd get price divergence, it's essentially two different securities.
I think most of the reasons mooted here are factors.. To summarise: Very different investor bases - and not all of them can readily access both markets. Quite different motivations involved in driving stock trading decisions Availability and attractiveness of other asset classes in China (the latest fashion/fad/bubble....currently garlic..) Execution costs, especially borrowing costs The restrictions on movement of capital out of China. Regulatory differences, especially as China may arbitrarily move to restrict or ban short selling, or change the rules from time to time. Differences in trading price limit rules Currency control effects and uncertainties Therefore, A and H shares aren't truly fungible. Now, the question is what will be the actual impact from Shenzhen- Hong Kong stock connect scheme when it launches next month, the impact of the new QDII funds, the increasing push by middle-class Chinese to invest overseas On the other hand, there is also a trend by mainland companies to delist their H-shares and re-list on the A-market You might also get more granular insights from at least the abstract of this recent study of the Shanghai-Hong Kong Stock Connect
Ok, thanks all for your input, some helpful info about a rather odd situation, I read the summary of your link Dunleggin, need to go through it properly.