While mainland China is trying to push a home-grown commodity exchange to expand overseas, it appears the London Metal Exchange, owned by Hong Kong Exchanges and Clearing (HKEx), faces a tough battle to attract mainland investment and support.
There are many signals that the central government is keen on having a home-grown exchange succeed internationally. If Beijing wants this exchange to become an international star, then it would not likely want a rival – at least, not in the near future.
The Tianjin Bohai Commodity Exchange, for instance, has seen many perks from the mainland government, based on its first roadshow in Hong Kong last week.
Established in 2009, the bourse has 70 trading products, from crude oil, metal, mushrooms to apples. It has created its own online platform, which now mainly caters to mainland firms and investors. Last week, it introduced its platform in Hong Kong, allowing foreign players to conduct yuan settlements.
The roadshow’s locale was telling: it was held at the Bank of China Hong Kong headquarters in Central. The bank’s parent company, Bank of China, is one of the Big Four state-owned commercial lenders in the country.
The Bohai bourse was also the first non-bank organisation on the mainland that has been permitted to conduct cross-border yuan business since April.
The London exchange, or LME, purchased by HKEx in December last year, also wants to attract mainland investors and introduce yuan-denominated trading in Hong Kong. The LME also wants to set up warehouses on the mainland.
But we have not yet seen any mainland policy to help promote the LME in the mainland. It also has not gained approval for the warehouse.
China is now the world’s largest consumer of metals and other resources, but it always complains it has little say in the price. It could well rely on the LME to remedy that. But if the Bohai Commodity Exchange grows in significance, then it won’t need the LME.
The LME has its advantages, however. The Bohai exchange currently only handles spot trading, while the London bourse deals with futures. Most importantly, international investors have been trading in the LME for decades.
During the Bohai roadshow, most of the 200 guests were from Hong Kong and Southeast Asia. This shows it still has a long way to go in capturing a slice of the international market.
If the LME can react quickly enough to introduce yuan commodities products in Hong Kong as soon as possible, it still has a chance to win.