Britain urges closer China ties despite economic risk

Britain's finance chief George Osborne will urge closer business ties with China as he visits the country's commercial hub Shanghai on Tuesday, according to a speech text, despite slowing growth and a stock market slump in the world's second-largest economy.

Osborne, Britain's Chancellor of the Exchequer, will visit the Shanghai stock exchange, which has seen its benchmark index plummet nearly 40 percent since June as a bubble bursts, while worries over flagging Chinese growth have shaken world markets.

A day earlier, Osborne agreed with top Chinese officials in Beijing to study linking trading on the London and Shanghai bourses and for China's central bank to issue short-term bonds denominated in the yuan currency in London.

The two countries' central banks will also increase the size of bilateral currency swaps, though no details were given.

"Whatever the headlines, regardless of the challenges, we shouldn’t be running away from China," Osborne said in excerpts of a speech provided to media.

"Let’s stick together to grow our economies," he said, adding he deliberately chose to visit the Shanghai bourse which he called the "epicentre of the volatility in financial markets".

China recently revised downward its 2014 economic growth figure to 7.3 percent, the weakest in 24 years. In both the first and second quarter this year, growth remained stuck at 7.0 percent, slower than all of last year.

Valuations on the Shanghai exchange alone have dropped by more than $2.4 trillion since mid-June, after a 150 percent surge in the previous 12 months, lifted by a borrowing-driven rally encouraged by authorities.

Chinese officials responded with a rescue package, whose hallmarks include banning big shareholders from selling and government buying of shares, which has raised questions over Beijing's management and drawn criticism for running counter to pledged economic reforms.

Britain and China have agreed to conduct a feasibility study on connecting stock markets, which London believes will offer more opportunities for investors from both countries and provide Chinese firms with financing, according to a statement from Britain's Treasury on Tuesday.

Shanghai and China's special administrative region of Hong Kong, a former British colony, have already linked their markets -- allowing investors in each location to trade select shares on the other exchange.

China is studying a similar scheme for its second stock exchange in Shenzhen, which borders Hong Kong, but recent market volatility is widely expected to delay the launch.