Chinese regulators announced that they are considering opening the country’s commodities futures markets to foreign investors and domestic financial institutions. The decision would represent a significant step toward liberalizing the domestic futures market, as foreign companies are currently only allowed to trade through brokers after having established local entities that require a substantial financial investment. Meanwhile, domestic commercial banks are only allowed to trade in gold and silver, leading them to engage in trading activity abroad.
Vice Chairman of the China Securities Regulatory Commission, Fang Xinghai, suggested that the move is intended to support China’s position as a “price maker” in the global market and to enable domestic companies to better manage market volatility. Alongside these plans, the regulator intends to enhance supervision to combat speculation and illegal activity.
The country plans to introduce the change gradually, beginning with crude oil, iron ore, and rubber contracts, and potentially followed by other agricultural commodities. As part of the plan, China will pursue bilateral and multilateral agreements with various international exchanges, recognizing the continued trend toward increased globalization.
China has become the largest consumer of many commodities globally, leading to a more prominent role for the country in impacting global prices. In addition, domestic markets have experienced significant volatility in recent months, which has prompted regulators to intervene with tighter trading rules, higher transaction fees, and shorter trading hours amid efforts to control speculative activity.
The decision to open up the commodities futures market is consistent with other moves and plans the country has announced to broaden access to domestic capital markets, ease capital controls, and integrate domestic markets with the global economy. A timeline for implementation of the reforms has not been announced as of yet.