By He Chuan
The internationalization process of commodity futures is expected to accelerate. Fang Xinghai, Vice Chairman of China Securities Regulatory Commission (CSRC) said recently that CSRC would speed up efforts in promoting the opening up of China's commodity futures market and all foreign financial institutions and brick-and-mortar enterprise enterprises would be expected to make investment in China and come into China's commodity futures market. In the future, efforts will be made to select world-renowned futures and open China's market for foreign investors and industry customers gradually.
Fundamental conditions of China's futures market international having gained
"Internationalization of futures market marks the opening-up of transaction rules, investment instruments on the market and participants and institution design in compliance with international practice. To realize internationalization of China's futures market, efforts should be made to steadily promote the internationalization of futures varieties, which is the core of internationalization thereof. Moreover, it is also necessary to attract foreign institutional investors to take part in China's futures transaction progressively," expressed by Hu Yuyue, director of Securities and Futures Institute of Beijing Technology and Business University.
According to the status quo, China's futures market has achieved preliminary progress in internationalization. On one hand, futures companies have taken part in the international futures market through such means as acquisition and establishment of new offices and domestic investors have "gone out" by taking advantage of futures companies. For instance, BOC International Future has applied for the liquidation membership of major overseas exchanges and Nanhua Futures has established an overseas subsidiary in Chicago in USA. In addition, foreign investors have also been permitted to take part in transaction on China's stock index futures market via QFII (Qualified Foreign Institutional Investors).
However, the internationalization of China's futures market falls behind the openness of China's economy. Given many Chinese enterprises have gone abroad and involved in the competition in the international market which facing various risks caused by market fluctuation, it is necessary to develop corresponding risk management tools and to gain advantages in competition through the internationalization of the futures market. "Overall, the opening degree of China's futures market is still at a lower level, efforts should be made to boost the internationalization of the commodity futures market to raise the international pricing influence of China's futures market constantly", said Fang Xinghai.
Besides, Zheng Xinli, Vice President of China Center for International Economic Exchanges, said that as China's futures market matures gradually, the market influence of PTA (purified terephthalic acid), iron ore, copper and other futures products is increasing progressively. However, the introversion property of China's futures market directly hampers the international influence and irradiation loop of such products. Only by promoting the internationalization of the futures market can these futures products be developed into international ones and the global radiating force of related products, and be improved in a real sense so as to improve China's discourse rights in bulky goods.
What is noticeable is that under the context of slow recovery of global economy and profound adjustment of trade in goods, the price of such bulky goods as crude oil and iron ore has remained at a relatively lower level. "The stagnant layout of bulky goods has made major resource-based countries suffer a lot. As the country with the largest increment in global bulky goods, China has improved its negotiation ability in the trading structure of bulky goods, therefore rendering an excellent opportunity for the internationalization of China's futures market and improvement of the pricing right over bulky goods", said Hu Yuyue.
Introducing the foreign investors first for special varieties
To promote the internationalization of China's futures market and establish a regional pricing center, it is inevitable to realize the internationalization of futures varieties. Given different launching time and maturity of China's futures varieties, the selection of products for internationalization and the internationalization mode should accord to the actual situation of futures products.Hu Yuyue said that preference can be given to mature futures products with Chinese characteristics to go abroad, such as iron ore and PTA.
For example, China is the largest consumer and importer and third largest producing country of iron ore in the world and 70 percent of global trade volume flows into China. The futures trading volume of China's iron ore has ranked second in global metal futures. However, given most participants of the futures market of iron ore are confined domestically, the price formed has rather limited radiating force and influence on the international market.
Wang Fenghai, General Manager of Dalian Commodity Exchange, also said that the Exchange would further efforts in policy communication, promote the establishment of iron ore as special domestic products, strive to introduce foreign investors directly and improve the rules and regulations for international business gradually.
According to views of many market participants, after internationalization of iron ore futures, domestic enterprises can take part in the market with lower cost and the involvement of foreign industry customers and investment institutions can further improve the market mechanism. Given the iron ore futures contract is priced at RMB, domestic enterprises can hedge the risks of incurred by settlement by foreign exchange.
Hu Yuyue believed crude oil futures, foreign exchange futures and other listed futures products should be launched as soon as possible and foreign investors should be introduced properly. "The sharply changed petroleum trading pattern and China's improved bargaining power over crude oil render a good opportunity for China to take part in the pricing of crude oil, while crude oil futures contract is the best carrier. In addition, 8 foreign futures exchanges have launched RMB futures at present and in terms of the pricing power of bulky goods, RMB is taken as the valuation and settlement currency in international trade and the futures market. Therefore, foreign exchange futures should be rolled out".
However, Yang Ju, Deputy Dean of Institute of Strategic Bulky Goods of Shanghai University of International Business and Economics, said that globally, the internationalization of futures market tests the financial regulation ability of a country and it is essential to make coordination and planning and to proceed with caution. The internationalization of management system and laws and regulations of futures market is a long-term and systematic project and the regulatory authority should make sound preparation, improve the risk control system and promote investor education earnestly.
Some market participants believed that though as the core of futures market, exchange has seen the slowest internationalization progress among all market participants. At present, domestic futures exchanges play the roles of both regulator and service provider, hindering the innovation capability of exchanges. In the future, exchanges need to promote the "separation of regulation from management", take product innovation as the port, optimize institutional design, lower the trading cost and strive to develop service-oriented international trading platforms.