Guangzhou plans to relaunch futures

Officials in Guangzhou, the provincial capital of Guangdong, unveiled plans late Monday to re-establish a futures exchange in the city by the end of 2015, an announcement which could pave the way for the opening of the Chinese mainland's fifth such exchange if central planners give their nod.

According to statements made at a press conference that night by the city's mayor, Chen Jianhua, the plans are aimed at helping local manufacturers shore up their pricing abilities when it comes to purchasing raw materials. As of yet, Chen and other local officials have not commented on the types of contracts or products which the exchange is expected to host.

With the approval of the State Council, the country has established two futures exchanges respectively at two of its three officially-recognized economic zones. At present, the eastern Yangtze River Delta region is home to the China Financial Futures Exchange as well as the Shanghai Futures Exchange. Further north, the Zhengzhou Commodity Exchange and Dalian Commodity Exchange are located close to the Beijing-Tianjin-Tangshan region.

Meanwhile, the country's southern Pearl River Delta region, another economic zone which consists of Guangzhou as well as several other major commercial hubs such as Dongguan and Shenzhen, has not hosted futures trading for nearly 15 years. But as Zhao Yan, a senior analyst from Everbright Futures, explained to the Global Times, Guangzhou is well suited for such an exchange. "The city has an edge in the derivatives market given its experience with exchange operation as well as its vigorous market environment," said Zhao.

Guangzhou established two of China's first domestic futures exchanges in 1993. Officials later combined the exchanges in 1995, but ultimately shut down futures trading in the city in 1998 amid concerns that rampant speculation was inflating the market. "Despite the long-standing absence of a local futures exchange, Guangzhou has accumulated experience when it comes to trading commodities," Zhao added.

Guangzhou and the Pearl River Delta region as a whole are home to robust spot markets for a variety of bulk goods - including refined oil, steel, plastics and grains - which are locally traded in large volumes, Nie Linkun, the deputy director of Guangzhou Financial Services Office, told local media Monday.

The city's proximity to Hong Kong has also helped it win favor with trading organizations in the region, Zhao also explained.

The Hong Kong Mercantile Exchange, the region's local commodity futures exchange, recently signed an agreement with the Guangzhou municipal government pledging its support for the creation of the city's exchange.

Yet, Sun Yonggang, a senior analyst with Everbright Futures, was skeptical about whether the Gaungzhou government's plans would strengthen the influence of local enterprises. "Businesses in cities where futures exchanges are located still have little sway when it comes to pricing commodities - with the exception, perhaps, of heavily traded commodities such as copper."