Representatives at a ceremony when 1 billion offshore bonds denominated in yuan, or dim sum bonds, issued by the China Construction Bank, were listed on London Stock Exchange's markets in October 2015. (Photo/China News Service)
Chinese investment in the UK is set to grow in 2017 as China's financial markets increasingly integrate into the global system, in spite of Brexit.
Chinese banks grew in London at unprecedented speeds in 2016 and now China's rapid reform and liberalization, combined with the renminbi's international status as a reserve currency, should push this momentum further in 2017.
In 2016, London hit an important milestone when it overtook Singapore in renminbi clearing volumes, becoming the largest center for renminbi activities outside China.
This momentum is set to continue, especially as the renminbi has inked its global reserve currency status by joining the IMF's basket of special drawing rights currencies.
Now, central banks and global institutions are looking to increase their renminbi asset holdings in a rebalancing move in line with special drawing rights. In particular, they are looking to buy into renminbi bonds and stocks. Then, it's just a matter of time Chinese bonds are included in major Western bond indices such as JP Morgan's.
London, with its reputation as an international capital, is perfect for more renminbi bond issuance in 2017. Currently there are 95 issues of yuan-denominated bonds listed on the London Stock Exchange, raising 37.6 billion yuan (.97 billion).
A feasibility study on connecting the London and Shanghai stock exchanges is well underway, giving London investors the chance to directly buy Chinese stocks.
Although Brexit stirred up concerns over London's status as an international financial hub, most Chinese banks have affirmed their confidence and continued investment in the UK capital. Their logic is simple－European activities can be left to their existing European branches. Their London activities are still set to grow, in particular, commodities trading, foreign exchange trading, and the trading of derivative products. Paradoxically, Brexit talks have made the UK's businesses keener to foster better relationships with China.
On July 22, UK Chancellor Philip Hammond and City of London policy chairman Mark Boleat led a delegation of the UK's major financial services and legal firms to a UK-China financial services roundtable in Beijing, in which they emphasized Britain's continued openness to Chinese financial cooperation. Two days later Hammond proposed a possible free-trade agreement between the UK and China.
When former Lord Mayor of London Jefrey Mountevans returned from his China trip in September, he announced that his Chinese counterparts had focused all major discussions on business opportunities and not Brexit.
The pragmatic Chinese government and businesses are clearly embracing the British government's increased attention toward China relations.