Increase in yuan trading should pave the way for more listings on the LSE

London is developing a growing reputation as a yuan trading center. It is hardly surprising then that Chinese companies will eventually launch more initial public offerings on the London Stock Exchange.

While the city, as it is known, is one of the most important financial centers in the world, the majority of Chinese companies have favored New York, Hong Kong or Shanghai in the past few years when it comes to IPOs.

New York-listed companies include some of the biggest Chinese corporate players such as Alibaba Group Holding Ltd, which raised a record-breaking $25 billion after listing last year.

At the time, it was widely reported that London was disappointed that the online giant's founder Jack Ma chose New York for the IPO.

But for many analysts and brokers in the financial industry, Wall Street was the logical place.

There are roughly 70 Chinese companies listed on the main New York Stock Exchange, with even more on the technology-dominated Nasdaq. In London, the figure is just 57 Chinese companies, and that number has hardly changed in the past few years.

To bring in more IPOs to the city, leading officials from the LSE went to Beijing in October to present their case to Chinese companies on the benefits of listing there.

After all, the LSE has a 214-year-old history, and is now extremely active in yuan trading.

Even so, this was the first time that it had held such an event in China.

To boost London's case, the United Kingdom became the first Western country to issue an offshore yuan-denominated bond in September. George Osborne, the UK chancellor of the exchequer, or finance minister, said the move was designed to increase financial links with China.

In the past few years, the Chinese government has started to relax its capital account restrictions in a move that will eventually lead to the yuan becoming a convertible global currency.

Already Beijing is encouraging the yuan to be used internationally and this in turn could see more Chinese firms looking to list overseas.

In European cities such as London, a growing number of yuan products are being created in offshore centers. These products have provided more choices for investors and will continue to do so in the future.

About 20 yuan-denominated bonds have been sold in London, raising a total of 15 billion yuan ($2.4 billion). Issuers included the Bank of China Ltd, European Bank for Reconstruction and Development, Lloyds Bank Plc, HSBC Holdings Plc and International Finance Corporation.

The second advantage is that the LSE is a transparent marketplace, underpinned by a strong regulatory framework.

Other key attractions for Chinese companies include the LSE's diverse investor base, a sound legal structure and an acceptable time zone.

With China's stock markets going through a turbulent period, it is likely that some domestic companies will consider London as a destination when they plan to list in the future.