Chinese news source Xinhua has reported that China’s Cabinet, the State Council has proposed revisions to its Futures Trading Regulations which would allow overseas investors to trade within the country’s local market. Currently, overseas traders are limited in participation to only China’s Equity and Index futures products. The new rules would allow for foreign involvement within the local market’s commodity markets.
Specifically, the revisions are aimed at developing China’s Crude Oil market. Although being a large consumer and owner of oil, China is exposed to the foreign market’s pricing for the commodity. The goal is that a stronger domestic market for oil and commodities will lead to the country having a greater impact on overall price movements. By allowing foreign traders to participate in China’s commodity trading, local exchanges are expecting that their presence will lead to greater liquidity and thereby more of an impact on overall global pricing. The revisions are expected to take place on December 1st 2012.
While the revisions are directed at the commodity market, currency markets may be affected as well. With the combination of Crude Oil and most other commodities being priced in dollars as well as the lack of a free floating yuan, China will need to create a mechanism to either allow overseas traders access to yuan or price its futures in dollars. Either way, the current trend is China’s desire to have more involvement with global commodity pricing. To achieve this result, the country will need to create a mechanism for a freer exchange of the yuan to foreign currencies.