* China may allow foreign exchanges to open warehouses in
free trade zones
* LME likely to be first to open warehouse in Shanghai's
newly approved zone
* Jiangxi Copper, Jinchuan and Maike building warehouses in
* More cities want to set up free-trade zones
By Polly Yam
HONG KONG, July 10 China's top planning body is
preparing to let foreign exchanges open commodities warehouses
in free-trade zones, sources with government links said, which
would grant the London Metal Exchange coveted access to the
The LME, the world's biggest marketplace for industrial
metals such as copper and aluminium, is likely to be the first
to win permission and get round the current ban on foreign
bourses setting up depots in mainland China.
It would be a triumph for the LME's new owner, Hong Kong
Exchanges and Clearing (HKEx), whose chief executive
Charles Li promised, during the $2.2 billion takeover last
December, to shepherd LME-registered warehousing into China.
The LME has sought for many years to set up delivery
networks in China to grow its business.
"The National Development and Reform Commission (NDRC) is
definitely going to bring the LME into China," one of the two
sources, who has knowledge of the government's free-trade zone
policy, said on Wednesday.
The sources said the NDRC was working on guidelines for the
policy to allow the LME to operate warehouses in the
newly-approved free trade zone in Shanghai. An announcement on
the first LME warehouse could come before the end of the year.
Asked to comment, an HKEx spokeswoman said its efforts to
gain access to mainland warehouses continued and it had no dates
for a decision.
"We are still working on the mainland warehouse initiative
but we don't have a timeline," the spokeswoman said.
The London-based futures exchange oversees a global
warehouse network where its clients can choose to take delivery
of consistent quality metals also including lead, zinc, nickel
and tin. The LME earns warehouse fees and a percentage of rent.
China is the top consumer of most raw materials and
warehouses linked to foreign exchanges there could increase the
influence of the world's second-largest economy over commodities
It would also accelerate the opening of China's commodities
markets to foreign investors. At present the metals business is
dominated by the Shanghai Futures Exchange, which has its own
The move would encourage China's huge industry to use LME
metals contracts to manage international price risk and boost
LME trading volumes - a boon for Li who has come under pressure
to justify the sum his company, which runs Hong Kong's stock
exchange, paid for the LME.
The opening of LME sheds in China would help manufacturers
there by cutting logistics costs which are a major factor in the
premiums or surcharges consumers pay, on top of LME contract
prices, to obtain metal.
"We need LME warehousing in China, our clients want it and
we've been trying for six years to make this happen," a senior
metals industry source said. "This is a big step forward, but it
depends on the time frame."
In a related development this month, the official China
Daily reported that China had approved the establishment of a
free trade zone in Shanghai that would experiment with
convertibility of the yuan currency.
Beijing's new leaders, who took over in March, have
signalled they want to quicken the process of making the yuan
fully convertible over the next few years, as part of
efforts to increase its use in trade and support wider financial
reforms. The commodity warehouses, being in the free-trade
zones, could be pioneers in this process.
Top metals producers in China are already building storage
depots in Shanghai's free-trade zone.
One, Jiangxi Copper, China's biggest producer of
the metal, was willing to get approval from the LME, a company
source said. The firm already runs a logistics company there.
Jinchuan Group, China's third-largest copper
producer and top nickel producer, and Maike Metals, China's top
private metals trader, are jointly building a warehouse in the
zone, trading sources said.
Other free trade zones, once established, could also host
warehouses operated by foreign businesses.
The eastern port city of Tianjin and Zhoushan Islands near
Ningbo, the third-largest port of China, have also submitted
proposals to Beijing to establish free-trade zones, the first
source with knowledge of the policy said.
Boosting logistics business in the free-trade zones is
expected to bring in more international banks, one of the
"Trade is always linked to financing, which has to be done
by big banks. That also relates to the yuan going into the
international market," the source said, declining to be named
because he was not authorised to talk about the topic.