China to boost international asset trading in Shanghai Free Trade Zone

SHANGHAI Fri May 16, 2014 7:09am EDT

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SHANGHAI May 16 (Reuters) - China will set up an international energy trading centre in its Shanghai pilot Free Trade Zone (FTZ), which will host the country's first-ever trading in crude oil futures, the China Securities Regulatory Commission (CSRC) said on Friday.

The CSRC, which supervises the securities and commodities futures markets, has also approved the Shanghai Stock Exchange to set up a platform to trade "international financial assets" in the FTZ as part of government policy to support the zone, a spokesman for the regulator told a weekly news conference.

The regulator has also pushed Chinese brokerages and fund asset management firms to set up branches in the zone, with about a dozen of such subsidiaries having now been established there, the spokesman said.

"The CSRC will in the future continue using the capital markets to support the construction of the Shanghai FTZ," the spokesman said, adding that market-oriented practices in the zone would then be copied to other parts of the country.

The construction of the energy centre, with a paid-in capital of 5 billion yuan ($8 billion), has so far made the most progress, with preparations of its market and technical mechanisms having been initially completed, the spokesman said.

The announcement is one of a series by FTZ officials in Shanghai, who have been stung by public criticism -- including from Chinese state media -- that they have been too cautious in implementing reforms.

The so-called "negative list" of sectors and activities banned for foreign investors in the FTZ was likely to shrink to about 130 items this year from the current 190, Zhang Hong, director of the fiscal and financial section of the FTZ management commission, told a news conference on Tuesday.

However, details on which items would be removed from the list were not disclosed. Investors have complained that the list is still too long, and regulators continue to block investments not explicitly prohibited by the list, including the establishment of commodities warehouses by foreign commodities futures exchanges.

Early announcements hyping the zone as the biggest reform since the establishment of the special economic zone in Shenzhen in the 1980s have since been criticised as over-selling it. While the headlines promising deep financial reforms helped set off a property bubble in the zone, economists questioned the feasibility of enacting deep reforms to interest rates and currency regimes without setting off a massive arbitrage spree.

Other national-level reforms enacted recently -- in particular the creation of an investment channel between the Hong Kong and Shanghai stock markets, and the development of a nationwide cross-border cash "pooling" scheme to make it easier for companies to get money out of the country -- have been seen as making some of the reforms proposed for the FTZ moot.

FTZ officials have embarked on an apparent publicity blitz to restore confidence in recent weeks, speaking at multiple events and reaching out to the press.

At a conference held on May 8 by the Canadian Chamber of Commerce in Shanghai, FTZ officials explained that the zone would allow companies to base their headquarters in the zone but carry out operations elsewhere.

"You can have your head in the zone but your arms outside," said Jian Danian, deputy director general of the FTZ administration, adding that officials were planning to take steps to keep rents under control to prevent high prices from discouraging investment.

On the sidelines of the same event, Cao Yan Wen, deputy director of the FTZ fiscal and financial services bureau, said the FTZ's planned outbound stock investment scheme would be wider in scope than the Shanghai-Hong Kong cross border stock investment scheme. ($1 = 6.23 yuan) (Reporting by Lu Jianxin and Pete Sweeney; Editing by Jacqueline Wong)

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