China's domestic commodity futures markets opened to foreign investors

2 Sep 2022 | Cai Chen, Masha Belikova

Chinese financial authorities have announced that they will expand access to key agricultural futures to foreign investors, according to official statements published by three major commodity exchanges on Friday.  

The Dalian Commodity Exchange (DCE), Zhengzhou Commodity Exchange (ZCE) and Shanghai Futures Exchange (SHFE) all released notices on their official websites separately but simultaneously on Friday.

"With the approval of the China Securities Regulatory Commission (CSRC), starting from today, Qualified Foreign Institutional Investors and RMB Qualified Foreign Institutional Investors can participate in the trading of the following commodity futures and options contracts," the statements said, listing a range of agriculture futures.

Products that are now allowed to be traded by overseas investors on DCE include futures and options for No.1 Soybean, No.2 Soybean, Soymeal, Soyoil, RBD Olein, Iron Ore, and petrochemical product LLDPE.

Within those products, RBD Olein has been open to international investors since the end of 2020.

However, foreign investors remain excluded from trading the Corn, Egg, Live Hogs, and Coking Coal futures and options.

On ZCE, overseas investors were allowed to trade Rapeoil, White Sugar, Methanol and Purified Terephthalic Acid (PTA) futures and options and Polyester Staple Fiber futures.

Other products, including rapeseed, rapemeal, and wheat, were still not open to international investors.

Finally, SHFE has allowed overseas investors to trade futures of Gold, Silver, Copper, Aluminium, Zinc, Steel Rebar, and Hot Rolled Coils, along with options for Gold, Copper, Aluminium, and Zinc.

The moves come as China doubles down on efforts to improve transparency and accessibility to its domestic commodity futures markets to the outside world while also promoting its pricing power and influence in the international financial market.

At the same point last year, China's cabinet announced plans to encourage more overseas investors into its domestic futures trading and launch more futures contracts.

However, international trade sources doubted that the move will attract much investment in the current climate, while domestic China-based sources highlighted that there were already futures hosted on Chinese exchanges that were open to foreign investors.

"It would not have too much impact on our domestic traders. We (China) already opened crude oil and PTA futures to foreigners before," a China-based futures trader told Agricensus.

For international traders, the perception that investing in China could come with a range of headaches meant that sources were dubious that the new opportunities would bring much activity.

"You're gonna have to have some crazy risk tolerance for putting much capital into those markets," one US-based broker said.

"I'd say on the face of it you see some volume go there, but I bet it's mostly spreading, so not a big drop in what gets traded here and on Matif," he added, referring to an old trade name for the Euronext French milling wheat futures contract.

"Making announcements is one thing, actually having a functioning entity is another," a second US-based broker told Agricensus, highlighting that bigger international trade houses and experienced traders have already been active in these markets for a while through local entities.

Beijing and Washington just last week also reached a preliminary deal to allow American officials to review audit documents for Chinese businesses that trade in the US, marking a major step towards avoiding the delisting of around 200 Chinese companies from New York exchanges.

"Maybe that was part of the 'audit' negotiation?" the second broker added.