The Shanghai-London Stock Connect project started in 2015 and was embraced by the London Stock Exchange as one that would give Britain a lead in tapping Chinese investors who are currently not able to invest overseas. It would also allow companies on the Shanghai Stock Exchange (SSE) to launch secondary offerings in London.
Chinese companies listed domestically cannot have a secondary listing abroad at the moment, with the exception of Hong Kong, and investors cannot use currencies such as euros or pounds.
The project will be important for London post Brexit and could also help the London market combat a sharp fall in new listings across Europe.
But sources say interest in the project in China has lost momentum, possibly because of difficulties introducing necessary changes to money market rules, as well as the delay to Brexit and the ongoing trade dispute with the United States.
The sources said what looked like a short delay to the launch of the London Connect could now be indefinite.
LSE and SSE officials say there is progress.
"Various work around the Shanghai-London Connect is proceeding normally," the SSE said in an emailed statement.
"The timing of launch will be decided by the preparatory conditions of the issuers on both sides, and the market. There's no concrete timetable for the launch."
Charlie Walker, LSE head of Equity Primary Markets, said that the project "is now in the final stages prior to launch. We are just waiting for one final set of foreign exchange rules to come out, and are hopeful that it will launch this year."
The delay comes as the uncertainty caused by Brexit remains unresolved and as growing trade tensions between the United States and China continue to rattle investors.
A launch ceremony for the project, scheduled for last December, was called off. A Chinese media report said at the time that this delay was linked to Britain's parliamentary vote on the Brexit deal, which was seen as creating market turbulence.
Brexit has now been delayed until the end of October and the British government is still working to reach an exit agreement.
The concept of a tie-up between Shanghai and London is the latest in a series of efforts by China to gradually bring its stock markets into the world trading system.
(Reporting by Clara Denina; additional reporting by Samuel Shen in Shanghai and Julia Fioretti in Hong Kong. Editing by Jane Merriman)
By Clara Denina