While South Africa and China have, in recent years, enjoyed a solid bilateral trade relationship, further cooperation between the two States – and their respective stock exchanges – is required to amplify the existing investment and trading rapport, advocates Shanghai Stock Exchange (SSE) chairperson Dr Gui Minjie.

Addressing the first South Africa–China Markets Forum at the JSE on Thursday, Minjie said that dual and cross listings between the two exchanges should be explored to strengthen cooperation and promote reciprocal investment.

Improved communication between the two exchanges was also fundamental.

“The mutual investment potential of our two countries has not been fully tapped.Further cooperation between the SSE and JSE is needed to support the development of cross-border exchange-traded funds (ETFs). We need to be able to track each other’s markets,” he commented.

Minjie’s comments came as the JSE signed a letter of intent for an index product licence with Chinese fund manager GF Fund Management to create ETFs based on the FTSE/JSE Top40 Index.

The FTSE/JSE Top40 Index, an index within the FTSE/JSE Africa Index Series, comprised the 40 largest companies on the JSE by market capitalisation.

The letter of intent, which signified closer ties between South Africa’s and China’s financial markets, would give Chinese investors greater exposure to South African companies, while providing local firms with improved access to one of the world’s strongest emerging markets.

“This agreement will, for the first time, allow a direct launch of an exchange-traded product in Asia,” JSE Market Data director Ana Forssman said.

Shandong province-based Qilu Securities chairperson Li Wei added that cooperation between Chinese and South African securities and financial institutions should be promoted and could be achieved through reforms of trading, settlement and credit mechanisms.

“For example, there has never been cooperation in terms of a bilateral currency exchange or currency convertibility between South Africa and China,” he noted.

While improvements to Sino-South Africa stock exchange communication were advocated, China Construction Bank deputy GM Dr Windsor Chan described South Africa as a “favourite” destination for Chinese investment, owing to the JSE’s announcement requirements and its subsequent transparency.

“It is very easy to get information on a company in the media and to find out what is going on with listed firms,” he said.

Described by Frontier Advisory CEO Dr Martyn Davies as “relentless”, China–South Africa trade figures had steadily increased since the early 1990s, improving from $3.9-billion in 1993 to $212-billion in 2012.

As South Africa’s largest trading partner, China remained a key buyer of commodities such as platinum-group metals, gold, coal and iron-ore, which together account for 41% of South Africa’s yearly exports.

Davies predicted that Africa would become China’s top regional trading partner by the third quarter of 2018.

However, South Africa remained vulnerable to the slowdown of the Chinese economy, which had been linked with its structural reforms that sought to improve economic efficiency and alter the economy’s investment- and resources-heavy balance in favour of higher contributions from the Chinese consumer.

Recent Chinese economic data had pointed to slower-than-expected growth, leading to Barclays subsidiary Absa cutting its 2013 growth forecast for the country to 7.4% from its previous projection of 7.8%.

South Africa had already seen the impact of slowing Chinese growth and this, coupled with recessionary conditions in Europe, had hurt South African exports and domestic manufacturing production in the second quarter.

“South Africa’s growth is underpinned by Chinese growth, as China’s resource-dependent economy requires Africa’s resources,” said Davies.

He referred to the South Africa–China “growth coupling” – a correlation in economic growth trends between Africa and China, which has been observed since 1999.