China, UK to deepen 'unrivaled' capital market partnership

China and the United Kingdom have reached a broad set of consensus to deepen capital market connectivity and partnership, showcasing the two sides' strong commitment to creating more cooperative and stable bilateral financial relations for mutual benefits.

Market experts said the move would help bring more foreign participation into China's capital markets, boost market liquidity and depth, and therefore inject a key force of stability and confidence against rising external uncertainties.

As part of the policy outcomes of the 11th China-UK Economic and Financial Dialogue, which has been reactivated after six years, both sides have agreed to deepen financial collaboration in such areas as regulatory cooperation, capital markets, asset management, insurance and pensions, as well as green finance and biodiversity finance.

According to the policy outcomes released by China's Ministry of Finance on Monday, both sides welcome the "unrivaled" China-UK long-term capital markets partnership, reaffirming their support for the China-UK Stock Connect and their commitment to working together to further enhance it.

China encourages eligible companies listed in Shanghai and Shenzhen to issue Global Depository Receipts (GDRs) in London via the connect, the ministry said in the policy outcomes, while the both sides agree to explore the feasibility of a China-UK ETF connect program.

To date, six Chinese listed companies have issued GDRs that are listed on the London Stock Exchange's main board, raising over $6.6 billion.

The ministry said that both sides welcome the approval for HSBC Bank (China) Ltd to trade Chinese treasury bond futures on the China Financial Futures Exchange. 

This would make HSBC the second foreign bank eligible to trade China's onshore treasury bond futures, following the suit of another British financial giant Standard Chartered, helping the bank better hedge risks while improving the investor structure of the onshore bond futures market.

Also, the ministry said China welcomes eligible UK-invested securities firms to apply to provide over-the-counter derivatives services, welcomes UK firms to establish and expand their onshore Chinese operations in the asset management sector, and welcomes more qualified UK firms to participate in the opening-up of China's financial markets via multiple schemes.

British financial institutions now hold stakes in eight securities and fund management companies in China, while four Chinese securities and futures companies have established subsidiaries in the UK.

"Financial dialogue between China and the UK is happening after an interruption of several years. This is the most important," said José Vi?als, group chairman of Standard Chartered PLC.

He said that China and the UK, as well as many other countries, have a significant mutual interest in continuing to foster open cross-border trade and investment flows and promoting green and sustainability agendas, making bilateral financial cooperation in these areas critical.

In terms of green finance, the ministry said both sides welcome the collaboration between Shenzhen Securities Information Co Ltd and China Securities Index Co Ltd with FTSE Russell, a London-based benchmark provider, to jointly develop China A Share Green Revenue Indices, while looking forward to an increased inclusion of Chinese bonds in FTSE Russell indices.

Experts said that the development of the green revenue indices -- likely to track A-share companies generating significant revenue from environmentally sustainable business activities -- points to foreign investors' interest in relevant A-share companies and would help usher in more investment to those firms.

Both sides also recognize the importance of green finance capacity building, according to the ministry, including through the Capacity-building Alliance of Sustainable Investment and the Green Investment Principles.

Dong Shaopeng, an advisory committee member of the Securities Association of China, said the consensus reached would help attract more UK investors to China's capital markets, helping improve their portfolio returns while optimizing the investor structure and enhancing the market depth of the onshore markets.

"China and the UK deepening financial cooperation and regulatory coordination would help inject a stabilizing force to global financial markets," Dong added.

Liu Zhihua contributed to this story.