Plans to launch crude futures contracts for overseas investors are gaining momentum with China's government.
Chinese officials are considering a plan to allow foreign investors with no local subsidiaries to trade in local commodities markets. The Shanghai Futures Exchange (SHFE) would host the contract, which would initially trade smaller 100-barrel futures.
According to officials and executives close to the deal, the initiative could get the nod early next year and already has firm backing from influential figures. Both Guo Shuqing, head of China’s securities regulator and likely candidate for the job of Central Bank governor, and Cai Xiyou, vice president of Sinopec Corp, are strongly in favour of the policy.
The SHFE, one of the largest exchanges in Asia, may even relax controls on other commodities if the crude futures plan is a success. “If it takes off”, remarks a senior industry official with direct knowledge of the plan, “we are talking about a possible daily turnover in billions of dollars.”
Not everybody is excited about the initiative. Kho Hui Meng, Asia chief of Vitol, the world’s largest oil trader, is concerned the trades could become a vehicle for centralised market control. “They want foreign oil traders and banks to create liquidity for them”, explains Kho, who adds having a Chinese benchmark could lead to government-controlled prices. China’s oil giants, who already use WTI and Brent benchmarks to calculate risk, may also be unwilling to change systems.
Nonetheless, the proposal is a positive sign that China is taking steps towards reform by opening up its massive oil market.