China is expected to launch crude oil futures in the Shanghai free-trade zone soon and invite foreign investors to trade.
The move is intended to give the nation, the world's biggest energy consumer, pricing power in the global oil market.
The Shanghai Futures Exchange launched a 5 billion yuan (HK$6.3 billion) subsidiary, the Shanghai International Energy Exchange, in the free-trade zone yesterday, taking a major step towards the official launch of energy contracts.
According to two people involved with preparatory work for the oil contracts, trading could begin in the first six months of next year as the government seeks to add to the country's global economic clout.
Futures are an agreement to deliver or take delivery of a commodity or financial instrument at a certain date and price.
Tu Guangshao , a vice-mayor of Shanghai, described the launch of the energy exchange as an important move with far-reaching significance for the development of the free-trade zone, launched in September.
"The free-trade zone is aimed at facilitating investments and trade, and concrete and substantial steps must be taken to achieve the goal," he said.
The China Securities Regulatory Commission has been preparing for the launch of the crude oil contracts this year.
The commodity futures market is currently still off-limits for foreign players, but analysts believe trading of crude oil futures would not amount to much without the participation of overseas producers and traders. China became the world's largest oil importer in September, overtaking the United States.
The launch of yuan-denominated oil futures would put the Shanghai Futures Exchange on a par with the New York Mercantile Exchange and the International Petroleum Exchange, where global crude oil prices are set.
According to sources, the authorities would initially set an investment quota for foreign players and expand it later.
Zhao Lei, chairman of Citic Newedge Futures, said foreign players were interested in trading crude oil futures in China and the brokerage was speeding up efforts to attract more overseas investors to the new contracts.
The launch of the crude oil futures would provide breathing room for officials, who have been criticised for failing to roll out major policy initiatives for the free-trade zone. Authorities have yet to publish detailed guidelines governing market liberalisation for firms registered in the zone.
"The State Council has given the free-trade zone a sound policy environment," said Shanghai Futures Exchange chairman Yang Maijun. "We will fast-track the preparatory process and try to ensure an early launch of the crude oil futures contracts."