* China's plan for crude futures gains momentum -officials
* Could allow foreigners with no local subsidiary to
* Benchmark to be of medium, sour crude mostly from Mideast
* Investors suspicious of price control; Import control
By Chen Aizhu
BEIJING, Dec 14 A plan to launch a crude futures
contract in China that would allow foreign investors to trade in
commodities markets without a local subsidiary for the first
time is gaining momentum and may get the nod early next year,
officials and executives said.
China is the top global consumer of raw materials and has
some of the fastest growing and most liquid commodities futures
markets, but state restrictions to limit international money
flows have prevented contracts gaining global prominence.
The plan for a crude futures contract is championed by the
head of China's securities regulator Guo Shuqing, a
reform-minded official believed to be a top candidate for the
role of Central Bank governor. It has won support from other
government agencies and state oil giants, industry officials
"If it takes off... we are talking about a possible daily
turnover in billions of dollars," said a senior industry
official with direct knowledge of the plan.
The Shanghai Futures Exchange (SHFE) would host the contract
and try to establish it as a regional oil pricing benchmark.
Exchange officials toured London, New York and Singapore earlier
this year on road shows, and last month went to Riyadh.
"I give it my full and strong support," Cai Xiyou, vice
president of Sinopec Corp in charge of marketing and trading,
told Reuters last month. "The key is to design the right product
to attract investors from all over the world to participate."
SHFE is awaiting Beijing's final approval to launch the
contract, which may come after March when China's new leaders
The exchange is one of the biggest in Asia, with liquidity
in base metals and steel contracts which have made them
regional, if not global, benchmarks.
A successful launch could pave the way for the opening of
other Chinese commodities futures to more foreign investment
such as copper and zinc.
China's growing oil consumption make it potentially fertile
ground for a benchmark contract. Crude imports into China are
likely to rise to 9 million barrels per day by 2020, according
to industry estimates. Imports in November were 5.69 million
bpd, or about 6 percent of global supply.
Contract lots would be relatively small at 100 barrels, a
tenth of the size of lots for both global oil benchmarks --
Europe's Brent and the U.S. crude WTI. The size
may make the contract attractive for retail investors, the
sources said. (For more details on the contract see FACTBOX
The contract would be for the type of medium sour crude
China most commonly imports.
"For years Chinese companies have been stumbling and
learning in markets designed by others," said a senior trader
with one Chinese oil giant. "This would be the first one
tailor-made for China's buyers, so we will have better
understanding and interpretation."
To attract international investors, the SHFE will, however,
need to overcome some old suspicions. For some traders, the
concern is that China's end game is to exert control over
"The impression I got is they want foreign oil traders and
banks to create liquidity for them," said Kho Hui Meng, Asia
chief of Vitol, the world's largest oil trader.
"When they say they want their own benchmark, it's quite
dangerous because it means they want control. That's a wrong
starting point. Then nobody will come."
Deeper reforms in China's tightly controlled oil import and
refining sectors would be needed to lure the world's top
producers, traders, refiners and investors, sources said.
China has only a few state picked buyers of crude. That may
make investors reluctant to trade the crude contract for fear
those buyers could have strong influence over pricing.
A duopoly of Sinopec Corp and PetroChina
together handle 90 percent of China's imports, with the
remainder split among a handful of other state energy traders.
Sinopec is Asia's largest refiner and processes some three
quarters of the total imports. PetroChina trails behind with a
still sizeable 15 percent. Most of China's small independent
refiners are not permitted to buy crude.
While China's oil giants say they back the contract, they
already use WTI and Brent to price imports and hedge risks. They
may be reluctant in reality to change that and move into an
"Unless the government has the drive to make it a compulsory
element in pricing China's crude oil imports, then few people
will be genuinely interested," said an executive with a European
bank, who had been briefed by the SHFE on the new contract.
Despite concerns, traders and investors hope China will take
a step toward opening its huge oil market with the contract.
"The long-term hope is to see this new crude futures leading
to eventual and material loosening up of China's oil import
control," said a trader with Mercuria Energy.