Renminbi-denominated Chinese investments now available through London Stock Exchange

Out-Law News | 10 Jan 2014 | 10:28 am | 1 min. read

A new renminbi-denominated exchange traded fund (ETF) has launched on the London Stock Exchange (LSE), giving European investors the opportunity to invest directly in the top 50 listed Chinese companies for the first time.

The UK already accounts for over 62% of renminbi (RMB) trading outside of China and Hong Kong. However, transactions previously had to be routed back into China via counterparties in Hong Kong. The new arrangement follows a deal announced by George Osborne during a trade visit to China in October, which gave London the ability to grant RMB Qualified Foreign Institutional Investor (RQFII) licences worth up to 80 billion RMB, or £8.2 billion.

"The launch of the RQFII ETF on the London Stock Exchange underlines the UK's position as the western centre for offshore RMB, and the UK's position as a global centre for asset management," said Sajid Javid, Financial Secretary to the Treasury.

"In October the UK and China agreed a number of measures that have cemented London's status as a thriving RMB centre. The UK was awarded the first RQFII quota outside of Greater China, and the Prudential Regulation Authority agreed to consider applications from Chinese banks to establish wholesale branches in the UK. The launch of the first RQFII ETF in London is the latest step in this success story – I hope that this partnership will pave the way for further collaboration between UK and Hong Kong based asset managers," he said.

The fund will be operated by Hong Kong-based CSOP Asset Management, which is a subsidiary of China Southern Fund Management Co Ltd, and London-based ETF operator Source. It will fall within CSOP's Hong Kong RQFII quota to invest in China, rather than the newly-announced UK quota.

An ETF is a low-cost investment fund in which other assets, such as stocks or bonds, are bundled for trade on a stock exchange. They typically track indexes such as stock indexes or bond indexes. The new RMB-denominated fund is linked to the FTSE 50 China A50 Index, made up of the 50 largest 'A Share' companies by full market capitalisation listed on the Shanghai and Shenzhen Stock Exchanges.

During his Autumn Statement last month, Osborne announced that the Government would abolish stamp duty on shares purchased in ETFs from April 2014, in a move intended to encourage these funds to locate in the UK.