Hong Kong-based CSOP Asset Management and London-based Source introduced the first renminbi qualified foreign institutional investor exchange traded fund or RQFII ETF that will be listed in London, Reuters reported. The fund will expand the channels for foreign investors who seek to invest in the domestic capital markets of China.

Offshore ETFs that are catered for the A-share market provide foreigners looking to get access to markets in the mainland. They are gaining popularity in the past few months as the Chinese economy starts to recover and the growth prospects in the West have become anemic.

European retail and institutional investors can invest in the fund which will track the FTSE China A50 Index, allowing investors to get exposure in the top 50 firms located in the mainland.

The fund has obtained strong demand. CSOP said initial orders as of January 3 already reached CNY 1.42 billion or $234.66 million. The fund was granted a total quota of CNY 1.5 billion.

UK Financial Secretary to the Treasury Sajid Javid said in a statement, "The launch of this RQFII ETF on the London Stock Exchange underlines the UK's position as the western centre for offshore RMB, and the UK's position as a global centre for asset management."

Created in 2011, the RQFII scheme permits financial institutions to utilize offshore RMB to make investments in the securities markets in the Chinese mainland. This includes stocks, bonds and money market instruments.

The report said that investors prefer the ETFs offered under the RQFII than those of its older cousin began in 2002 known as the Qualified Foreign Institutional Investor or QFII. The reason is that RQFII ETFs make investments in constituent stocks having the same weight as those in the benchmark. The QFII ETFs, on the other hand, use derivatives to have exposure and as a result have a larger counterparty risk and tracking error, the report said.