Charles Li, ceo of Hong Kong Exchanges and Clearing, is putting in place a China metals strategy that has the support and cooperation of politicians, regulators and exchange counterparts on the mainland.
Ok, so for the moment this is more hypothesis than statement of fact.
But the almost inescapable implication of statements before and during the second LME Week Asia is that the commodities strategy, beginning with yuan-based metals contracts on HKEx, has been fleshed out in advance with key players on the Chinese side, including the Shanghai Futures Exchange.
When the HKEx was buying the LME there was much talk of whether HKEx would become some kind of rival to the SHFE as the pricing centre for Chinese commodities markets.
At the first LME Week Asia last year, Li talked in fairly vague terms of “cooperation, not competition” with the Chinese exchanges. The HKEx was variously described as a potential hub, bridge, interchange for market access in and out of China: in metaphors rather than concrete terms.
And the Shanghai Futures Exchange was notable by its absence at that event.
This year, Li was able to talk in more literal terms about what cooperation might entail, and the Shanghai Futures Exchange chairman Yang Maijun was present on a panel, talking openly if cautiously of international collaboration.
Several members of the audience noted the friendly body language between Li and Yang, while others talked about the fact that the pair entered the huge LME Asia dinner hall together.
These may or may not be vital signs of a blossoming friendship, but there were other more tangible signals ahead of LME Week Asia, with the publication of plans for an equities link-up between the stock exchanges of Hong Kong and Shanghai. This was announced by no less than China’s president Xi Jinping at an international conference.
The equities “through-train” has been two decades in the making and was publicised by HKEx to much fanfare as a big step towards the opening up of China’s financial markets. To state the obvious, it already has the support of the China Securities and Regulatory Commission.
Without that announcement, HKEx may have been able to unveil its new yuan-based metals contracts in Hong Kong, and the coal contract.
But it would not have been able to expand on the broader strategic context of those contracts.
The mutual market access programme for equities is the first phase in Hong Kong becoming a hub for cross-border financial trading; metals and commodities is the second phase.
With full-scale political backing for the first stage, and the open discussion of the second, it does not seem fanciful to imagine that the principle of mutual access on commodities is already largely agreed with the Shanghai Futures Exchange and others. Perhaps it was subject to a long period of getting comfortable with the details.
Li said: “The only chance for this to work or become a reality, is completely dependent on whether or not we as an exchange are able to work with all of you and particularly importantly with China’s commodities exchanges to see if this is a shared dream or a shared vision or a shared interest.”
Days after LME Week Asia, CSRC officials were quoted as saying the regulator had set up a mechanism for communication and coordination to “deepen cooperation” and “promote common development” between Hong Kong and the Chinese exchanges in commodities futures. This would be done under the auspices of the Closer Economic Partnership Agreement between Hong Kong and Beijing.
So there does appear to be significant institutional and political momentum behind Li’s plans, because they fit so neatly into the Chinese government’s own agenda for financial opening up.
It should be noted however that in equities, there is already a long history of cross-border partnership, for example with many Chinese companies listing “H shares” on the Hong Kong stock exchange in addition to their “A shares” in Shanghai.
In metals and commodities, the HKEx is only just setting out.
“In equities it took us 20 years, let’s hope it does not take twenty years to do that [mutual market access] in commodities,” Li said. “Certainly not ten years, not five years, we want to see if we can achieve it shorter than that. Maybe three, maybe four, maybe five years.”
There are strong signs that plans for Hong Kong to become a hub for cross-border financial activity with China have already gathered significant official goodwill.