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For years, Frankfurt has wanted to elbow its way into the lucrative Dim Sum market. At a conference on that theme last year, Bundesbank executive board member Joachim Nagel said: “Frankfurt can be more than a niche player. In the future, I can imagine that German companies would like to have the opportunity to do all trade-related renminbi transactions via Frankfurt.”
A line was drawn in the sand at the end of April when German government-owned development bank KfW sold the first Frankfurt-listed Chinese renminbi issue through Commerzbank and Deutsche Bank. The new May 2016 offering was priced with a yield of 1.375%, in line with guidance of 1.375%, and during bookbuild doubled in size to Rmb1bn (US$160m).
“The first listing of a renminbi bond on the Frankfurt Stock Exchange emphasises the significance of Frankfurt as a financial centre… It also represents a macroeconomic effort, which we welcome, particularly with regards to the potential benefits for the export-oriented small and medium-sized enterprises,” said Guenther Braeunig, responsible for capital markets and a member of KfW’s executive board.
This year, Dim Sum issuance has been on a roll. The first quarter of 2014 saw Rmb125bn of bond sales, according to Thomson Reuters data, the highest quarterly level on record. This was despite a 3% decline of the currency versus the US dollar, which meant that issuers had to offer attractive levels to snare investors.
Much is in Germany’s favour to be a Dim Sum centre in Europe. For years, Germany has been China’s largest counterparty in Europe, with €162bn of trade last year, according to the federal statistical office.
A positive step forward was taken in April when China became a trading and clearing member of Deutsche Boerse.
“In the light of continuous fast internationalisation of the renminbi, the building-up of a strategic co-operation between both parties will lead to a win-win situation,” said Bank of China chairman Tian Guoli when the deal was announced.
But the harsh reality is that the European playing field is too busy for Frankfurt to dominate. The largest volumes in Europe of renminbi-denominated investment funds and Dim Sum bonds are listed on the Luxembourg Stock Exchange, while London handles almost two-thirds of renminbi trade outside China, according to Swift, the Brussels-based Society for Worldwide Interbank Financial Telecommunication.
Some would argue, however, that there is little need for rivalry. The Dim Sum pool is big enough for all and there is scope for Frankfurt to become a specialist in the field. A recent report from PwC suggested that rather than squabble among themselves, the financial centres of Europe should work together and play to their own strengths: London in trade and foreign exchange; Germany in goods trade; and Luxembourg in investment and asset management.