China‘s Internationalization Initiatives
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In the midst of transitions of Chinas economic driving forces, capital market policies and global market integration one main pillar is the internationalization and promotion of the Renminbi (RMB) in both on- and offshore markets. This objective is especially significant for the international investors’ community, as China’s financial market reforms ultimately allow for better accessibility to the world’s second largest economy, eventually leading up to attractive direct investment opportunities. China is progressively increasing the quota for Qualified Foreign Institutional Investors (QFII) and RMB QFII and, thereby, broadens both onshore and offshore investment flows. Further liberalization initiatives are under way, allowing Chinese and foreign investors to interact in cross-border asset transactions more fluently.
As China is gradually opening up its capital markets, its internationalization initiatives present an unparalleled opportunity to the global capital markets community and, subsequently, to international investors seeking access all along. Accelerating the development of China’s opening-up strategy by means of engaging in RMB internationalization through the endorsement of high-level two-way channels becomes of utmost importance
For the realization of China’s global market integration objective. While the continuous integration between China and international capital markets will progressively affect global policy makers and the structure of investment landscapes, it will most importantly spawn new strategic cooperation opportunities and market integration initiatives. Initiatives such as the Shanghai-Hong Kong (SH-HK) Stock Connect and the impending launch of the Shenzhen-Hong Kong (SZ-HK) Stock Connect reflect China’s cross-border engagement and efforts to further promote capital account liberalization in offshore markets. In addition, China’s global market integration and its strategic collaborations—by bridging markets and forming new alliances—have also reached European market participants and are already starting to present their full potential.
“China is a major player in the global economy with increasing relevance for financial markets around the world.”
In 2015 an important milestone was the establishment of China Europe International Exchange (CEINEX), a cooperation between Chinese Exchanges, namely Shanghai Stock Exchange and China Financial Futures Exchange, and Germany’s Deutsche Börse Group. CEINEX is utilizing know-how, leveraging capabilities and channelling combined efforts to create a major RMB-offshore hub in Frankfurt. By providing attractive investment opportunities to international investors it supports the RMB’s development into one of the main global investment currencies. CEINEX continuously focuses on strengthening the financial cooperation between not only Germany and China but also the European and other international financial markets and China’s capital market. This essential and dedicated platform establishes a bridge between capital markets, offering RMB and China-related investment opportunities through robust, transparent and world leading trading venues.
The announcement of the International Monetary Fund (IMF) to include the Renminbi in its basket of currencies with Special Drawing Rights (SDR) substantially increased the currency’s international use and trading—with more to come. Especially looking at the pace of China’s global market integration and currency liberalization, the associated complexities are to be evaluated continuously. Hence, the IMF recently stressed the importance of policy cooperation, in order to safeguard financial stability. This is especially meaningful because China’s rising monetary and corporate integration in international markets is directly correlated to its financial market reform and must be backed up by harmonization of standards to simplify cross-border transactions.
To sum up, the current changes in economical driving forces, structural investment landscapes and policies, cross-border opportunities and future initiatives–actively promoted by capital market participants in China and Europe—manifest the continuous global integration of China’s capital markets. Full-scale global market integration is undoubtedly a long-term objective, which process will be subject to the aspiration of capital market participants and the international investors’ community to pursue the integration of the Renminbi among the leading international currencies.
Fast Boat to China
China is a major player in the global economy with increasing relevance for financial markets around the world. The internationalisation of China’s financial market and currency, the Renminbi (RMB), will further shape the global financial landscape. China Europe International Exchange (CEINEX) was established by Shanghai Stock Exchange, Deutsche Börse Group and China Financial Futures Exchange to bring China’s financial market closer to the international investor community. It is the first dedicated platform for China- and RMB-related investment products outside Mainland China, creating new opportunities for growth and diversification. In the following interview, Dr Han Chen, CEO of CEINEX, outlines the nature of the platform.
Dr. Han Chen, CEO of CEINEX
CEO: Can you tell us about the development of the joint ventures and its main objectives?
Established in 2015, China Europe International Exchange AG (CEINEX) is a joint venture formed by Shanghai Stock Exchange (SSE), Deutsche Börse AG (DBAG), and China Financial Futures Exchange (CFFEX). Based in Europe’s financial center Frankfurt/Main, Germany, CEINEX is the gateway for global investors to the world’s second largest economy–creating new opportunities through its offering of China and Renminbi (RMB) related investment products outside of mainland China. The establishment of CEINEX in 2015 is another important event to further open the Chinese capital market after the successful launch of Shanghai Hong kong equity markets connect in 2014.
CEINEX aims to be the offshore RMB products trading, pricing, risk management and asset allocation center, a global liquidity pool for products denominated in RMB and based on Chinese assets, as well as to enable investment and hedging transactions during European and US trading hours. CEINEX endeavors to bridge China and Europe by creating a major RMB-offshore hub in Frankfurt and providing attractive investment opportunities to international investors in order to further develop the RMB as an international currency.
“The operators of the joint venture are working together in developing and introducing innovative new products, which will be launched based on market demand and the market situation.”
CEO: Can you give us some details regarding the partners and what this will mean to investors?
CEINEX is a unique combination for the changing global markets. The new trading venue is an utmost important element of the three party’s internationalization strategy. The partners are globally leading trading venues from China and Germany. Shanghai Stock Exchange, founded in 1990, has become the preeminent stock market in mainland China by number of listed companies, market capitalization and turnover in equities. Deutsche Börse Group is one of the world’s leading service providers for securities and derivatives markets with products and services offered for issuers, investors, intermediaries and data vendors. China Financial Futures Exchange is a rapidly growing professional market place offering financial instruments for hedging and risk management.
SSE and CFFEX offer support to CEINEX to expand its product range in manifold aspects. The CEINEX market operates fully within Deutsche Börse’s operational infrastructure, which means that listing, trading, clearing and settlement of CEINEX products follow and apply the same procedures and interfaces as DBAG’s markets. This allows international market participants of all kinds to access the products conveniently and efficiently within familiar procedures under EU market regulations.
Via CEINEX, investors are invited to participate in an offshore liquidity pool in Chinese underlyings denominated in RMB with little effort, something they have been seeking for all along.
CEO: What is the organizational structure of China Europe International Exchange?
CEINEX is a German share corporation (AG) registered in Frankfurt am Main. Its three shareholders are Shanghai Stock Exchange, Deutsche Börse AG—each owning 40 per cent—and China Financial Futures Exchange, owning the remaining 20 per cent. It is the first trading venue specialized in the development and distribution of China and RMB related investment products outside mainland China.
The Supervisory Board represents the leadership of CEINEX’s shareholders. Responsible for supporting the Executive Board the Supervisory Board guides corporate decisions and strategic direction. The Executive Board brings together experts from the global financial markets to shape and manage CEINEX for the value of our customers.
CEO: What kinds of products are traded via CEINEX?
CEINEX provides an extensive variety of asset classes to the international investor community specializing in China and RMB related financial products. From the beginning about 200 products are traded on CEINEX, including RMB denominated bonds and Exchange Traded Funds (ETFs). Forthcoming, common shares as well as hedging instruments will further diversify the product line offering a full range of participation opportunities for the sell- and the buy-side. Tradable in RMB and other currencies, e.g. EUR., all these products based on Chinese underlyings enable investors to participate in China’s further growing economy.
ETFs on CEINEX track the most important Chinese indices and by that China’s capital market. RMB bonds are issued by blue chip companies or large financial institutions. Bond products focus on prominent Chinese enterprises and financial institutions, supranational institutions, sovereigns/government and quasi-sovereign agencies, Sino-German strategic cooperation projects as well as selected ‘One Belt, One Road’ infrastructure projects from China. The db x-trackers Harvest FTSE China A-H 50 Index UCITS ETF (DR), issued by Deutsche Asset Management together with Harvest Global Investors on 30 March 2016, is the latest ETF in CEINEX’ product range. The operators of the joint venture are working together in developing and introducing innovative new products, which will be launched based on market demand and the market situation.
CEO: How can investors join the CEINEX market?
All CEINEX products are listed on Deutsche Börse’s respective markets and product segments. Trading is conducted within the European regulatory environment and time zone using the existing infrastructure and licenses with Deutsche Börse Group. Therefore, a trading membership with Deutsche Börse is required. Deutsche Börse members are automatically eligible for the trading of CEINEX products. Individual investors or entities without an exchange membership can access CEINEX products via brokers offering brokerage services for CEINEX products.
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