London ready to deepen bond market connectivity with China: official
The London bond market stands ready to deepen and broaden its connectivity with China, a leading official in London said on Tuesday.
China and the UK have agreed to start a feasibility study on a Britain-China bond market connect arrangement to help facilitate greater two-way investment into each other’s bond markets. [Photo: VCG]
China’s Ministry of Finance on Saturday published 72 policy outcomes of the ninth China-UK Economic and Financial Dialogue (EFD) held in Beijing.
Among these was agreement to start a feasibility study on a Britain-China bond market connect arrangement to help facilitate greater two-way investment into each other’s bond markets.
Sherry Madera, the City of London Corporation (CLC) Asia adviser, who attended the EFD as part of the British delegation, said at a press briefing in London that a feasibility study was a “wise move”.
In London “it has its home in the banks and the different platforms that the banks use, so it is a little less clear how you have a single point of contact to connect to,” Madera said. “So a feasibility study makes a lot of sense to determine the steps to make that connection work.”
The Shanghai Clearing House, a central party for clearing bonds as well as other financial instruments, set up a branch in London in March and is one of the key infrastructure players supporting the bond connect.
“Having Shanghai Clearing House here in London is a great footprint to start investigating in detail how that works,” said Madera.
FURTHER INTERNATIONALIZATION OF RMB
Among other outcomes from the EFD in Beijing between China and Britain was a decision to jointly host a UK-China renminbi (RMB) Internationalization Dialogue in London next year.
The aim is to promote London’s role as a Western Hub for RMB and encourage greater use of RMB in international markets, and to support its use as the settlement currency in bilateral trade and investment.
Madera said: “Why aren’t the investors rushing in to the Chinese bond market? Part of it is investors getting comfortable with usage of the RMB, being able to hold it offshore and deploy it effectively onshore.
“So the bond market in trying to create that efficiency is a great opportunity for London because here is the deepest market and here is the largest foreign exchange, so being able to hold RMB here and deploy in China or elsewhere is an exciting opportunity.”
London is currently the world’s second largest market for offshore RMB, accounting for 6 percent of the market and second only to Hong Kong.
An exploration and development of investment mechanisms could see the use of RMB broadened.
“It’s not only about bringing RMB offshore but about redeploying RMB onshore,” said Madera. “It needs to involve different players not only banks and not only institutions like London Stock Exchange, Shanghai Stock Exchange and Shanghai Clearing House.”
“We also need to think about corporate treasurers and how it is for them to deploy money in a logical way. That discussion is quite new, and something we will be championing,” Madera added.
SUPPORT FOR BELT AND ROAD INITIATIVE
The CLC, which is the municipal authority for the financial district known as the City of London, supports the work of the 15,000 companies in the area which employ 400,000 workers in financial businesses.
The City is a global financial hub with expertise which CLC wants to deploy in support of China’s Belt and Road Initiative.
Catherine McGuinness, the leader of the CLC and its policy and resources chairman, took part in the EFD in Beijing.
McGuinness said at the London press briefing: “There is increasing interest in Belt and Road and what London can offer.”
“When one looks at the breadth of what the UK has to offer — on project financing in particular, from engineering advisory to legal supporting work to the financing advice when one brings in private capital, to risk mitigation — people are beginning to realise this is something the City, as the global gateway to capital that it is, as the historic center for project financing, has a great contribution to make.”
McGuinness said that the historic and business ties from the City to countries along the Belt and Road could help support its development.
“Given the scale of this vision there is increasing appreciation that there is a real role that the UK, alongside other partners such as Hong Kong and Singapore, has a significant contribution to make,” said McGuinness.
Madera said that London offered support to the Belt and Road through deep and liquid markets, an established and widely used legal system adopted in many international infrastructure projects and access to foreign exchange expertize and liquidity.
“London is the largest foreign exchange market in the world and the BRI is going to have a significant amount of foreign exchange, it is going to be necessary in order to deploy foreign capital,” said Madera.