The China-Japan ETF Connectivity scheme was launched on June 25, with a total of eight ETFs, four ETFs listed on the Shanghai Stock Exchange and four on the Tokyo Stock Exchange. The scheme allows Chinese and Japanese investors to invest in each other’s markets through locally-listed ETF products.

The Chinese ETFs invest in the Japanese market via the GQII programme while the Japanese ETFs invest in the Chinese market under the QFII/RQFII schemes. There is no entry barrier for Chinese retail investors to buy these ETFs, unlike the Stock Connect programme between Shanghai/Shenzhen and Hong Kong which has a minimum requirement of 500,0000 yuan (US$72,635). The Shanghai-London Connect, which launched on June 17, requires 3 million yuan.

“The China-Japan ETF connect aims to boost cooperation and connectivity between China and Japan’s capital markets, which are the second and the third largest capital markets in the world. It is a brand-new model to achieve two-way opening of China’s financial markets,” says Becky Liu, head of China Macro Strategy, Standard Chartered. “The launch of this scheme is much faster than any other existing schemes – it took less than 10 months between the initial feasibility study to the official launch of cross-border products. This scheme can easily be replicated between China and other major financial centres, and could be used as a new model to open up China’s capital markets, not only for equities but also for other products (such as bonds).”

“The programme, together with other planned enhancements, will likely materially revitalize the old QFII/RQFII programmes (Renminbi) Qualified Foreign Institutional Investors). The QFII/RQFII programmes are poised to be combined and enhanced, such as the broadening of investment scope to include financial futures, private funds, the greater flexibility of FX transactions (allow multiple FX counter party to trade onshore CNY), potential removal of quota requirements, and enhancements on cross-border remittance and so on,” says Liu.