Analysts say move will further open China's capital market
The Shanghai Stock Exchange (SSE), China Financial Futures Exchange (CFFE) and Deutsche Borse AG officially established a joint venture Thursday in Germany called China Europe International Exchange AG, according to an announcement the SEE published on its official Weibo account Thursday.
Analysts noted that it is a move to support financial cooperation between China and Europe.
The market, which is set to trade yuan-denominated offshore products, will be officially launched on November 18 under the new brand CEINEX, according to the Deutsche Borse website.
The deal was signed Thursday, the first day of German Chancellor Angela Merkel's two-day visit to China.
The SSE holds a 40 percent stake in the venture while the German exchange and the CFFE hold 40 percent and 20 percent, respectively, the announcement said. The three parties are investing 200 million yuan ($31.46 million) in the new company.
The CEINEX will offer investment products based on underlying Chinese assets to international investors, starting with cash market products such as exchange-traded funds (ETFs) and bonds, the announcement said. It will be the first dedicated platform for authorized yuan-denominated trading outside the Chinese mainland, the announcement published by the German exchange noted.
Setting up a legitimate trading venue for yuan-denominated offshore products will support the currency's globalization, Ding Zhijie, an economics professor at the University of International Business and Economics in Beijing, told the Global Times Thursday.
"It also shows that China's capital market is further opening up, which is likely to facilitate investment overseas," Ding said.
Zhou Yu, director of the Research Center of International Finance at the Shanghai Academy of Social Sciences, agreed with that view. In terms of financial markets, Europe is building up close ties with China and showing support for developing yuan-denominated offshore products.
Countries such as the UK and Germany have shown confidence in the inclusion of the yuan in the currency basket of the IMF's reserve unit known as Special Drawing Rights, Zhou said.
"For example, a German government-owned bank -KfW Bankengruppe - completed the sale of a 1.25 billion yuan 3-year dim sum bond at a yield of 4.25 percent at the beginning of 2015, showing great interest in the offshore yuan market," Zhou noted.
Based in Frankfurt, the management board of the new company includes senior executives from the three exchanges, according to the website of Deutsche Borse.
"The CEINEX provides a sound basis for the development of a successful capital market between Europe and China," Carsten Kengeter, CEO of the German exchange, was quoted as saying in the announcement.
As China is seeking more cooperation with Europe, the market is expected to provide more financing channels for Chinese companies that invest in industries such as transport and infrastructure in Europe, Zhou noted.
Premier Li Keqiang was quoted in June by the Xinhua News Agency as saying that the country pledged 315 billion euros ($354.9 billion) to invest in Europe and encouraged bigger roles of other financing arrangements in the revitalization of the European economy.
Still, the new market is not without risks, because the yuan is not a freely convertible currency yet, analysts noted.
By starting with ETFs and bonds, the market is likely to contain risks by avoiding trading in high-risk derivative products.
"However, time is still needed for China to fully integrate with the global financial market," Tan Yaling, dean of the Beijing-based China Forex Investment Research Institute, told the Global Times on Thursday.
Tan also noted that the priority is to standardize the trading process in the offshore yuan market.
