Beijing launches China-Japan stock connect scheme, showcases it as a move to defy rising protectionism

-A +A

(June 25): Four exchange traded funds each from China and Japan given access to shares on their respective bourses.

China on Tuesday accelerated the liberalisation of its capital markets, launching yet another stock connect scheme linking Shanghai and Tokyo stock exchanges and in the process, took a swipe at the US for its trade protectionism.

Under the China-Japan ETF Connectivity scheme, investors will be allowed to buy into exchange-traded funds to participate in the trading of stocks listed in their respective markets.

“It is of great significance for China and Japan, the world’s second- and third-largest economies to form a tie-up on the capital markets at a time when trade protectionism is on the rise,” Fang Xinghai, a vice-chairman of the China Securities Regulatory Commission (CSRC), said during the opening ceremony at the Shanghai exchange via video conferencing, in a thinly-veiled criticism of the US administration, amid the ongoing trade war between the world’s two largest economies. “It shows that China has not backed down on its plan to open up the capital market. Instead, we will speed up the process.”

Four funds worth a combined 1.5 billion yuan (US$218.3 million) issued by China Asset Management, China Southern Fund Management, E Fund Management and Hua An Fund Management that track the Nikkei 225 Index and the Topix Stock Price Index started trading on the Shanghai Stock Exchange.

At the same time, four ETFs that track blue-chip indicators such as the SSE180 and CSI500 in Shanghai were launched by Asset Management One, Mitsubishi UFJ Kokusai Asset Management, Nikko Asset Management and Nomura Asset Management.

The CSRC launched the Star Market, a technology innovation board at the Shanghai bourse on June 13. Four days later the CSRC and British regulators put the Shanghai-London Stock Connect scheme in operation.

The Shanghai-London stock link allows companies to trade depositary receipts shares — bank certificates representing shares in a foreign company — giving investors access to companies that they were unable to buy before.

Chinese securities regulators have pledged to connect the yuan-denominated A-share market, once off-limits to foreign companies and investors, with more overseas markets to increase cross-border equity trading and boost the mainland’s influence in the global economy and finance sector.

“At present, mainland investors have little knowledge about companies traded in Japan,” said Ivan Li, an asset manager with hedge fund Loyal Wealth Management. “But the China-Japan stock connection scheme does create a new channel for global asset allocation.”

In 2012, Beijing approved the first two ETFs that allowed mainlanders to invest in Hong Kong-listed stocks, taking an initial step in connecting the A-share market with overseas exchanges.

In 2014, the Shanghai and Hong Kong stock exchanges launched the stock link project that allows investors to directly trade stocks listed on each other’s markets through local brokerages.

A similar trading system connecting Shenzhen Stock Exchange with its Hong Kong counterpart, kicked off two years later.