Frankfurt making moves to lure China-related business from UK

Traders work at their desks in front of the German share price index, DAX board, at the stock exchange in Frankfurt, Germany, August 31, 2016. [Photo/Agencies]

Frankfurt is flexing its muscles to lure China-related financial business away from London.

Deutsche Borse said on Friday it will establish a D-share market in the second quarter of next year for Chinese companies to raise euro-denominated funds for local acquisitions.

It will also complete a feasibility study this year on a potential joint venture with China Foreign Exchange Trade System, to jointly develop and distribute renminbi-denominated interest rate and foreign exchange products outside China.

The two developments come amid a new wave of liberalization policies for China's capital markets this year, showing that Deutsche Borse is keen to seize the advantage in the surging two-way financial flows as China opens up, analysts said.

They also said it matches the new trend of European financial centers competing for China-related business as London deal swith Brexit-related issues.

However, Deutsche Borse executive board member Jeffrey Tessler stressed the new announcements are unrelated to the UK's Brexit discussions.

Christian Cornett, corporate partner at law firm King&Wood Mallesons, said, "Brexit indeed provides fuel for Frankfurt becoming a central European hub for Chinese capital market products, and Brexit can thus indeed be described as one accelerator among others."

Ben Robinson, economist at the Official Monetary and Financial Institutions Forum, a think tank, said Frankfurt has unique strengths in connecting European Union, Chinese and UK financial flows.

"As a major hub for renminbi liquidity within the euro area, Frankfurt provides a key role for China to access European markets, but critically can also act as a bridge for the UK to access both euro and renminbi liquidity," he said.

Jan Dehn, head of research at London-based Ashmore Investment Management, said he believes China should "keep a foothold in London, but clearly freeze its engagement pending greater clarity about the outlook" while engaging more with European financial markets like Germany.

Meanwhile, the UK is keen to stress that its new post-Brexit independence will increase opportunities for financial partnerships with China.

Lord Mayor of the City of London, Jeffrey Mountevans, who led a financial delegation to visit Chinese regulators and businesses in September, returned to the UK saying his Chinese counterparts were much more interested in the opportunities.

The London Stock Exchange, which in September won shareholder approval for its 21 billion pound($27.2 billion) merger with Deutsche Borse, is on track to complete a feasibility study for a potential Shanghai-London Stock Connect.

Dehn said the stock connect still makes sense, particularly in offering European investors the chances to buy Chinese shares in their own time zones.

The Frankfurt-based D-share market will be launched under the China Europe International Exchange– a joint venture between Deutsche Borse, the Shanghai Stock Exchange and the China Financial Futures Exchange – launched last year in Frankfurt that already offers 180 China-related products.