In Dalian, a city in Northeast China known for steel and ships, the city’s tallest building is not a bank or a mill – it is the Dalian Commodities Exchange.
As China has emerged as the global driver for commodities, the prices of goods from cotton to copper are increasingly set by market fundamentals in China. However, China’s commodities exchanges do not yet play a similar global role, and they are limited by laws banning foreign participation as well as China’s renminbi capital controls.
Yet as the 53-storey, white marble tower of the Dalian Commodities Exchange suggests, China’s futures exchanges are ambitious and hungry to extend their reach. They are rolling out new products, building new buildings, educating the public about the value of hedging, and seeking to build a profile commensurate with China’s status as a commodities heavyweight.
They still have a long way to go. Foreign businesses are barred from investing in commodities futures under Chinese regulations (foreign investment in equities is similarly highly restricted, although slowly these restrictions are lifting). The renminbi is only gradually opening up channels of convertibility, making it difficult for big investors to move money into and out of the country.
On top of that, China’s exchanges open for a mere four hours a day, and the country’s legal system lacks the transparency necessary to reassure investors that disputes will be arbitrated fairly. And while markets are extremely liquid in the short term, they are not liquid enough in the long term for serious hedges that could take the place of, say, the 63-month copper contract offered on the London Metals Exchange.
“One of the reasons China’s copper contract does not play the global role that it deserves is that the Chinese futures market is still closed to foreign investors,” points out Chen Baizhu, professor of finance at USC Marshall. “In 1994, China had bond futures and there were huge speculative bubbles and many people got burnt. Now [regulators] have become more cautious, particularly as people can use futures to speculate,” Mr Chen says.
Yet given these barriers, China’s exchanges have grown surprisingly quickly. China’s futures industry may be only 17 years old but its exchanges are now among the most liquid in the world in terms of the numbers of contracts traded. Last year, the Shanghai futures exchange was the 10th-largest derivative exchange in the world by volume, according to the Futures Industry Association, and the Zhengzhou and Dalian exchanges were just behind it.
Part of the reason for this is product innovation. Unique products such as Shanghai’s contract for rebar, a form of steel bar used in construction, have drawn in investors, including some foreign investors who use it as a hedge for Chinese growth. The rebar contract was just launched this year and is already the most active product on the exchange — more than 16m tonnes worth of rebar contracts changed hands on Thursday.
In Dalian, the exchange is developing the world’s first future for coke, a key input to make steel, and last year the exchange introduced a contract for PVC piping. At one point the exchange even considered a futures contract for live hogs, although this was shelved.
China first introduced futures exchanges in the early 1990s. Since then, and as regulations tightened during that decade, more than 40 futures exchanges have been whittled down to three: Shanghai for base metals, Zhengzhou for agricultural products, and Dalian for other agricultural products as well as an expanding range of chemical and energy products.
China’s exchanges have been hitting new highs during the current bull market – Dalian, for example, reported a record last week with Rmb380bn worth of trades in one day. The hot market has prompted several Chinese exchanges, in an effort to reduce volumes and increase margins, to charge both sides of the trades for certain contracts.
When Chinese exchanges do fully liberalise, there is little doubt that they will seek to capitalise on China’s role as the prime consumer of many global commodities.
But that may not happen for some time. “Ultimately Chinese commodities can’t become a benchmark until there is free convertibility in the currency,” says Nick Ronalds, executive director of FIA Asia.
在以钢铁和船舶业闻名的中国东北城市大连，全市最高的建筑不是银行或工厂，而是大连商品交易所(Dalian Commodities Exchange)。
除此以外，中国的交易所每天只开4个小时，而且中国的法律体系缺乏透明度，不足以保证投资者的纠纷能够得到公平仲裁。虽然市场短期流动性极其充裕，但一些重大的套期保值产品的长期流动性则不足，无法取代目前已有的成熟产品，比如伦敦金属交易所(London Metals Exchange)提供的63个月期铜期货。
尽管存在这些障碍，中国交易所的发展速度却快得出人意料。中国的期货行业只有17年的历史，但就交易的合约数量而言，中国的期交所现在已跻身全球最具流动性的期交所之列。根据期货业协会(Futures Industry Association)的数据，以成交量计，上海期货交易所去年是全球第十大衍生品交易所，郑州和大连交易所紧随其后。
但这种情况可能一段时间内还不会发生。FIA Asia执行董事尼克?罗纳德斯(Nick Ronalds)表示：“归根结底，在人民币实现可自由兑换之前，中国的大宗商品不可能成为基准。”