The pilot Shanghai Free Trade Zone is expected to accelerate the country’s commodity trading. Our reporter Martina Fuchs finds out from trade insiders at a conference in Beijing about their expectations.
China’s drive to trade commodities is speeding up. And the new Shanghai free-trade zone might be give an extra push to the commodity futures market.
"It is setup to facilitate flow of goods, capital and people with relaxed interest rate and foreign currency regulation. We believe commodity traders will stand a benefit from the free trade zone especially through the construction of warehouses." James Campbell, Head of Agribusiness China, ANZ said.
So far, Chinese regulations prohibit banks from trading physical commodities with the exception of gold.
The pilot zone opened last month and is expected to test key financial reforms. Numerous pros may be waiting in the pipeline.
"Traders and bankers here in Beijing are telling me that if commodity trading gets the go-ahead in the Shanghai Free Trade Zone, this would tremendously reduce transaction as well as transport costs for domestic buyers, who until now had to use warehouses in Singapore or South Korea."
Shanghai’s rise could also heat up the competition for regional commodity hubs such as Singapore.
One bank which has already its eyes on this potential opportunity is the National Australia Bank.
"There is too much differential between the onshore market in China and the offshore international market. And I think the Shanghai Free Trade Zone connects the bridge between the 2. We have signed a letter of intent with Bank Of China to explore some of the opportunities. Nobody knows the answers yet, but we will definitely get to the forefront to explore what we can do in the future, it’s a great development." Michael Hogan, Head of Trade Asia, National Australia Bank said.
Another development -- is that foreign commodities exchanges may be allowed to set up their delivery warehouses in the new zone.
The London Metal Exchange could become a key beneficiary. The LME is the world’s largest metal exchange, but so far had no warehouse in the Chinese mainland. For China, the world’s largest producer and consumer of metals--to have a bigger say in commodity pricing, it has to play a bigger role in the commodity trading game.