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China and Japan to list each other's ETFs as soon as May

Two countries seek to boost flows of money ahead of Xi's visit in June

A man checks stock information at a brokerage in Shanghai. ETF cross-listings will link Japan's stock market to Chinese retail investors.   © Reuters

BEIJING -- Japan and China will make it easier for investors in each country to buy each other's stocks by cross-listing exchange-traded funds as early as next month, translating a commitment to closer financial ties into action, Nikkei has learned.

In China, ETFs tracking the Nikkei Stock Average and the broader Topix will trade on the Shanghai Stock Exchange. This will mark the first listing of Japan-stock ETFs on the mainland.

The move stems from an agreement on financial cooperation at last October's summit between Japanese Prime Minister Shinzo Abe and Chinese Premier Li Keqiang. The cross-listings mark a step toward improved relations ahead of Chinese President Xi Jinping's visit to Japan in June.

Household financial assets in China are projected to hit 82 trillion yuan ($12.2 trillion) in 2023. Japan hopes that a portion of this money will flow into Japanese stocks through ETFs bought on the Shanghai exchange.

The TSE, under Japan Exchange Group, will list Shanghai-index-linked ETFs.

ETFs targeting Chinese blue chips already trade on the TSE, but the new listings will broaden choices available to retail and institutional investors.

Another area of financial collaboration will be a first-of-its-kind bilateral securities market forum to be held in Shanghai next Monday, where regulators, stock exchanges and others will discuss partnerships for promoting financial transactions. Japan and China aim to hold this forum once a year.

Beijing has also opened its doors to Japanese securities companies' entry into China. Nomura Holdings is preparing to establish a majority-owned joint venture in the country after receiving government approval this March. The company will provide asset management services for wealthy Chinese clients.

Behind the progress in Sino-Japanese financial collaboration is Xi's upcoming first visit to Japan as president this June for the Group of 20 summit in Osaka, where he is also expected to meet with Abe.

As Sino-American tensions persist, China appears to be opening up its financial markets as a way of pulling Japan closer.

ETFs are bought and sold like stocks during market hours. Index-linked ETFs offer an alternative to higher-cost actively managed mutual funds.

The TSE hopes that the mutual listings will stimulate growth in Japan's ETF market, which lags behind the U.S. and Europe. Assets in exchange-traded products listed in Japan totaled over $334 billion at the end of February, according to British fund tracker ETFGI. The U.S. figure topped $3.6 trillion at the end of January, while Europe's neared $860 billion yen at the end of March.

"Convenience is improving for investors as a variety of ETFs compete amid high demand for passive investments tracking indexes in the U.S. and Europe," said Koei Imai, head of Nikko Asset Management's ETF Center.

Nikkei staff writer Kyohei Suga in Tokyo contributed to this report.

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