.png)
The UK and China are exploring the establishment of a UK-China ETF Connect programme to further solidify the capital market1 partnership between the two countries. This initiative signals a strong commitment to strengthening financial ties and creating mutually beneficial opportunities.
Strategic Rationale
The UK aims to reinforce its position as a leading global financial centre, strengthening its role as a hub for Renminbi (RMB)2 denominated financial products and enhancing its attractiveness to international investors. By deepening its financial ties with China, the UK seeks to expand opportunities for market participants and further establish itself as a key player in global finance. From China’s perspective, this programme aligns with its broader strategy to reform and open up its asset management3 sector, creating a more competitive and dynamic financial environment. By welcoming increased participation from foreign firms, China aims to enhance its market efficiency, attract global expertise, and facilitate greater cross-border capital flows.
Both the UK and China recognise the crucial role that asset management plays in efficiently allocating capital, fostering financial stability, and driving long-term economic growth. By enabling broader investor access and improving connectivity between their financial markets, the ETF Connect programme has the potential to generate significant benefits for both economies. It can promote diversification by offering investors a wider range of investment opportunities, encourage innovation by stimulating new financial products and services, and support long-term market stability by strengthening regulatory cooperation and transparency. Through this collaboration, the UK and China are not only deepening their financial partnership but also setting the stage for a more integrated and resilient global financial system.
Potential Impact and Growth Opportunities
The ETF Connect programme is designed to facilitate increased investment flows, granting investors in both the UK and China access to a broader and more diverse range of investment opportunities. By improving market connectivity, the initiative seeks to attract greater cross-border capital and enhance liquidity4 in both financial markets. One of the key anticipated outcomes of this programme is the expansion of market activity, particularly through the increased presence of UK subsidiaries5 of Chinese asset managers listing Exchange Traded Fund (ETF)6 products in London. This could include a growing number of ETFs denominated in RMB, further strengthening London’s position as a global hub for RMB-denominated financial instruments.
Beyond fostering investment flows and market expansion, the ETF Connect programme aims to enhance the overall attractiveness of both the UK and Chinese ETF markets to international investors. By deepening financial ties and facilitating greater accessibility to each other's markets, the initiative could encourage broader participation from global investors seeking diversification and exposure to high-growth opportunities. Strengthening these links not only supports economic collaboration between the two countries but also contributes to the development of a more integrated and resilient global financial system.
Framework for Collaboration
A joint taskforce has been established to advance capital market reforms in China, comprising representatives from FTSE Russell, the Shanghai Stock Exchange, and the Shenzhen Stock Exchange, with support from the China Securities Regulatory Commission (CSRC). This collaborative effort aims to promote greater openness, improve market transparency, and enhance the attractiveness of China’s financial markets to global investors. By fostering regulatory alignment and encouraging foreign participation, the taskforce seeks to further integrate China’s capital markets into the global financial system.
A key initiative within this framework is the development of new indices7 that align with China’s evolving financial landscape. Shenzhen Securities Information Co., Ltd and China Securities Index Co., Ltd are working alongside FTSE Russell to develop the China A Share Green Revenue Indices. These indices will track companies generating significant revenue from environmentally sustainable activities, supporting China’s broader push towards green finance8 and responsible investment. By offering investors a benchmark to evaluate sustainable business practices, these indices will contribute to the growth of China’s green economy and further attract ESG-focused investments9.
Additionally, there is growing anticipation for an increased inclusion of Chinese bonds10 in FTSE Russell indices. As China continues to liberalise its bond market and enhance accessibility for foreign investors, greater representation in global indices could lead to higher capital inflows and improved market liquidity. This move would not only strengthen China’s bond market but also reinforce its integration into the global financial landscape. Through these combined efforts, China is making significant strides toward a more open, competitive, and investor-friendly capital market.
Financial and Economic Context
The London Stock Exchange has emerged as a key platform for Chinese companies seeking to access international capital. To date, six Chinese-listed companies have issued Global Depository Receipts (GDRs)11 on the exchange's main board, collectively raising over $6.6 billion. This development reflects the deepening financial ties between the UK and China, offering Chinese firms greater access to global investors while providing international investors with new opportunities to gain exposure to China’s dynamic economy.
Furthermore, by listing on an internationally recognised exchange, Chinese companies benefit from increased visibility, stronger corporate governance standards, and broader investor participation. At the same time, this initiative supports London’s position as a global financial hub, reinforcing its role in facilitating international investment and strengthening connections between European and Asian markets.
Regulatory and Legal Considerations
The UK and China have agreed to explore the feasibility of a UK-China Wealth Connect programme, aiming to facilitate investment flows between the two financial markets. This initiative, if implemented, could provide investors with expanded opportunities to access wealth management products across both jurisdictions, fostering greater financial integration and cross-border capital movement. By assessing the regulatory, operational, and market dynamics involved, both nations seek to establish a framework that ensures efficiency, stability, and investor protection in this potential collaboration.
In addition to the Wealth Connect feasibility study, regulatory engagement remains a key priority for both countries. Regulators and industry participants will continue to convene to advance discussions on a range of initiatives, including bond market connectivity, post-trade cooperation, and cross-border data sharing. Strengthening these areas of collaboration is essential to enhancing market infrastructure, improving transparency, and fostering a more resilient financial system.
Conclusion
The prospective UK-China ETF Connect programme marks a significant advancement in strengthening financial ties between the UK and China. By establishing new channels for investment and cooperation, this initiative is poised to stimulate growth, enhance market accessibility, and foster innovation within the financial markets of both nations.
Through the ETF Connect programme, investors in both countries will gain exposure to a broader range of Exchange Traded Funds (ETFs), allowing for greater portfolio diversification and risk management. This initiative is expected to drive liquidity, attract international investors, and create new opportunities for asset managers seeking to expand their global reach. By facilitating seamless cross-border investment, the programme will not only enhance market efficiency but also reinforce the UK and China’s positions as leading global financial hubs.
Glossary
1. Capital Market – The venues where funds are exchanged between buyers (capital suppliers) and sellers in the form of equity securities, bonds, or other financial assets
2. Renminbi (RMB) – The Renminbi, also known as the Chinese yuan, is the official currency of the People's Republic of China
3. Asset Management –The business wherein a financial institution manages money on behalf of institutions, sovereign wealth funds, pension funds, corporations, and other large groups
4. Liquidity – Liquidity refers to the ease with which an asset, or security, can be converted into ready cash without affecting its market price
5. Subsidiaries – a subsidiary is a company that belongs to another company, which is usually referred to as the parent company or holding company. The parent holds a controlling interest in the subsidiary company, meaning it owns or controls more than half of its stock
6. Exchange Traded Fund (ETF) – An Exchange Traded Fund (ETF) is a basket of investments usually made up of shares and/or bonds. They are traded on a stock exchange and most ETFs track the performance of an index. They provide access to a basket of investments for usually a much lower cost than purchasing the individual investments yourself
7. Indices – Indices are a measurement of the price performance of a group of shares from an exchange
8. Green financing – Green financing is a loan or investment that supports environmentally-friendly activity, such as purchasing environmentally-friendly goods and services or building environmentally-friendly infrastructure
9. ESG-focused investments (Environmental, Social and Governance) – ESG typically refers to investments that aim to deliver positive returns whilst having a long-term impact on the environment, society, and businesses and all of this is done without sacrificing returns compared to traditional investments
10. Bonds – Bonds are investments representing the debt of a government, company or other organisation. Effectively they are loans, or "IOUs" issued by these organisations and bought by banks, insurance companies, fund managers and private investors
11. Global Depository Receipts (GDRs) – A global depositary receipt (GDR) is a negotiable financial instrument issued by a depositary bank. It represents shares in a foreign company and trades on the local stock exchanges in investors' countries
