Singapore 25/05/2016 - China is looking to open up its commodities futures markets further to overseas participants and domestic financial investors while seeking a bigger say in pricing commodities in the global market.
China will gradually allow overseas investors to participate in Chinese commodities futures trading by "creating conditions to allow more overseas futures companies to enter China while bringing in overseas investors"' Fang Xinghai, China Securities Regulatory Commission (CSRC) vice chairman, said in a conference at the Shanghai Futures Exchange (SHFE) on Wednesday.
This process will start with crude oil, iron ore and rubber before being extended to other products, he said.
"Under an appropriate system and risk controls, research can be done to push commercial banks and other financial institutions to enter the commodity futures market in an orderly manner," Fang said.
Only domestic commercial banks are able to participate in gold and silver futures trading at present, he also noted.
At the same time, there should be a continued push to “cancel related political limitations, and encourage and support companies to use the futures market for hedging and risk management,” Fang added.
"China is the largest consumer of most commodities, and should the 'price-deciding' futures market be in China, we will have a greater impact on prices," he said.
China has been expected to open up more commodities traded in its futures markets - including those of nonferrous metals - to foreign investors over time.
Crude oil futures on the Shanghai International Energy Exchange - a subsidiary of SHFE - will be one of the first commodity futures contracts that qualified foreign investors would be able to trade via approved overseas or local brokerages or by applying for direct trading licences with the bourse.
The launch of the crude oil prices contracts, which were initially expected late in 2015, appear to have been delayed to late this year, according to reports.
Currently, only bullion futures on the Shanghai Gold Exchange are accessible by foreign investors in the city's free-trade zone.
Chinese restrictions on currency and capital flows as well as foreign participation have largely deterred global investors from Chinese futures market. Trading on Chinese commodity futures exchanges is dominated by local entities.
Foreign companies can trade via brokers but only after setting up a wholly owned subsidiary in the country, which requires a large amount of registered capital.
As the world’s largest consumer of metals, China is intent on having more influence in determining global metal prices. It is only a matter of time before metals futures are opened up to direct foreign trading, industry participants said.
(Editing by Mark Shaw)