It has taken China 25 years since the idea of running the country’s own yuan-denominated oil futures was first proposed. Now, the Shanghai Futures Exchange has launched its first commodity derivative open to foreign investors. This is a significant move for China’s policy on energy safety and its being able to set rules and prices for oil sold in the region. It also marks a milestone for Shanghai to become a global financial centre. Hitherto, the crude oil benchmark has been dominated by the Intercontinental Exchange’s Brent and New York Mercantile Exchange’s West Texas Intermediate. By denominating oil contracts in yuan, it will help promote the use of the currency in international settlements and set up an alternative benchmark to reflect the grades of oil that are mostly used in regional refineries and differ from those for Western contracts. China challenges Europe, US benchmarks with launch of first oil futures contracts Since last year, China has surpassed the US as the world’s largest crude importer, giving it an impetus to develop its own futures market. Back in 1993, China already had domestic crude futures, but they were discontinued a year later because of excess volatility. The last time Shanghai introduced a futures market for a major commodity, it was nickel in 2015. In less than two months, trading exceeded that for the benchmark on the London Metal Exchange. There is no reason not to expect oil futures will not become a major market in time. However, domestic investors tend to pay a much larger role in such a market. The crucial test is to attract foreign traders. Global commodity giants Glencore and Trafigura Group are among 19 overseas brokers already trading in the Shanghai market. China’s yuan-denominated oil futures - what took you so long? However, there will have to be accommodation between foreign players and the central government, given the latter’s penchant for occasional intervention. In the case of nickel, steep price rises led the authorities to impose tougher trading rules, higher charges and shorter trading hours. Capital controls may also be an issue, though they may well be lightened. Meanwhile, just as alarmists have warned about China’s military challenge to the US, so their economic counterparts have raised concerns that the new futures market aims to take on the greenback’s dominance in oil pricing. PetroChina seeks more ‘Belt and Road’ acquisitions, lifts gas output to feed China’s war on air pollution Both will not happen any time soon. Nor are they even Beijing’s near-term goals. It’s enough, for now, that there will be a market that suits the needs and demands in the region, especially for those countries that are taking part in President Xi Jinping’s “Belt and Road Initiative”. Since the new “Silk Road” extends to the Middle East, it would indeed be a coup if somehow the Saudis, long entrenched in the petro-dollar pricing system, may be convinced to accept a secondary market in the yuan. This is all part of China’s peaceful rise; the world should welcome it.