China lends guiding hand to futures markets

The Chinese government appears to have an important objective to achieve while promoting commodity futures trading in the country?

A report in today’s Wall Street Journal says that the government is positioning its futures markets in setting world prices for metal, energy and farm commodities. Jiang Yang, chief futures industry policy maker and assistant chairman of the China Securities Regulatory Commission is quoted as saying that the government has a long-term goal of increasing China’s influence in pricing. Yang also says that futures may assure Chinese commodity importers of ‘fairer deals’.

Pic source: Xinhua

The big implications are for the oil market as China imports huge volumes every year. The Shanghai Futures Exchange is said to have plans of introducing its own contract for crude oil next year. This may not be an immediate threat to the Nymex contract but the development needs to be watched closely especially if it has the support of the Chinese government.

“Beijing believes hosting big futures markets will enhance the country’s economic security by essentially advertising what the world’s biggest customer for some commodities considers a fair price. For the rest of the world, the exchanges could mean less guesswork about China’s buying habits, possibly reducing volatility in the global market.”

The strength of Chinese buying in the physical market has for some time now guided global petrochemical prices. But with the lldPE and PVC contracts turning out to be spectacular hit this year on the Dalian Commodity Exchange will these contracts soon become a reference for global pricing?

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