Photographer: Hannelore Foerster/Bloomberg

Germany's China Courtship Advances With Deutsche Boerse Venture

  • New joint venture will focus on interbank market products
  • China Europe International Exchange to begin trading Nov. 18

As German Chancellor Angela Merkel seeks deeper economic ties with China, Deutsche Boerse AG announced a new venture intended to strengthen financial links between the two countries.

Germany’s biggest exchange and China Foreign Exchange Trade System have agreed on a joint venture that will host interbank products and renminbi-denominated currency and interest-rate trading, according to a statement Thursday. CFET, run by the People’s Bank of China, provides trading and information for interbank bonds and foreign exchange.

A week after Chinese President Xi Jinping stayed at Buckingham Palace, Germany is taking its turn to build its relationship with the world’s second-biggest economy. And just as London Stock Exchange Group Plc played a role in the U.K.’s courtship of China, Deutsche Boerse’s Chief Executive Officer, Carsten Kengeter, is part of Merkel’s entourage of business leaders in Beijing.

“Our joint venture will contribute to the continued growth of our markets and economies,” Kengeter said in a statement. “Further, it will also strengthen the relevance of Europe as an RMB offshore hub and be mutually beneficial for our organizations, and importantly, for our customers.”

The German exchange said in May that it’s starting a joint venture with two Chinese exchanges to offer renminbi-denominated instruments. The Frankfurt-based operation will be called China Europe International Exchange, or CEINEX, and is due to begin trading on Nov. 18.

Shanghai Stock Exchange and China Financial Futures Exchange are the other partners in the project, which will initially offer trading in exchange-traded funds and bonds. It’s the first authorized platform that’s dedicated to renminbi trading outside mainland China.

Other exchanges also have renminbi-based products. China Construction Bank Corp. listed an exchange-traded fund on the London Stock Exchange in March. Last week, Chicago-based CME Group Inc. said it’s offering an offshore-renminbi futures contract that’s deliverable in London. Euronext NV listed a money market ETF in Paris during the summer.

The new Deutsche Boerse partnership announced on Thursday, in which both sides will have a 50 percent stake, will also be based in Germany. The venture will give participants in China’s interbank market the chance to trade Deutsche Boerse’s derivatives and cash products. It will also allow the German exchange’s customers to trade Chinese interbank assets.

China didn’t allow its currency outside its own borders before 2004, but now it’s rapidly integrating with global financial markets and may announce a 2020 deadline to fully dismantle currency controls. That’s an opportunity that hasn’t been lost on European leaders who are racing to develop their relationship with the Asian giant. French President Francois Hollande plans to visit China next week.

“China is at the core of our expansion plans,” said Lee Hodgkinson, head of global markets and sales at Euronext. A study commissioned by the market operator forecasts that as much as $5 trillion of Chinese money over the next three to five years will flow into assets on European exchanges.

Euronext said on Thursday that it has been approved by Hong Kong’s regulator to grant the city’s trading firms access to its derivatives market in Paris. Euronext will provide a “bridge” for Chinese brokers based in Hong Kong, according to Tan Yueheng, chief executive officer of BOCOM International Holdings Company Ltd. The securities and asset-management firm has applied to become a Euronext member.

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