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China's growth as a consumer in the energy and commodities global market could eventually sway price movements, says Hong Kong Mercantile Exchange’s Cheung
Energy and commodities markets are set to see a surge of liquidity and new products available for investment and hedging, after the Chinese government took several steps to change its policy surrounding the renminbi (RMB), says Barry Cheung, chairman at the Hong Kong Mercantile Exchange.
"China has a national policy governed towards gradually liberalising the renminbi," says Cheung, speaking in an exclusive interview with Energy Risk in Hong Kong. "Already, following the Chinese government's experiment with new liberalised measures, you can already see that more banks and institutions are introducing more renminbi-denominated products. We will see that accelerate as there will be a lot more liquidity with the renminbi being traded more widely and freely."
China has taken several steps over 2010 to tweak its policy over its official currency. China's central bank, the People's Bank of China (PBoC) is expected to significantly encourage growth of both the international renminbi trade settlement programme and renminbi liquidity in Hong Kong.
Some policy changes included an announcement in August that China will make it easier for banks originating and receiving payments for companies trading with Chinese firms to access the mainland's interbank bond market.
This followed an announcement in July this year, which revealed that the Hong Kong Monetary Authority (HKMA) would work with China to encourage the development of renminbi-denominated financial market products and investment instruments, which HKMEx is keen to tap into.
"We have numerous products under development that span both commodity sectors and products along the value chain, from feed stock to finished products," says Cheung. "We are also keen to leverage off Hong Kong's status as China's main offshore renminbi centre, where the currency can be freely used
in trade settlement. Latest figures show that there were more than 100 billion worth of renminbi deposits in Hong Kong in July; an increase of 85% year-on-year."
Hong Kong has RMB89 billion in renminbi deposits with more than RMB13 billion in renminbi trade settlements with China in June this year, according to HKMEx figures.
China is one of the most significant players in the energy and commodities markets, in terms of both supply and demand.
The liberalisation of its currency could mean more non-domestic market participants will be able to access more China-based producers, end-users and other trading institutions, as well as being allowed to create, offer and trade new derivatives products to Chinese cash-settled accounts more freely.
Cheung also believes China's significance within the energy and commodities global market as a consumer could eventually sway price movements.
"We believe a geographic economic shift is taking place," says Cheung. "As Asia takes up an ever-increasing share of the global commodity consumption, [the region] will start to expect commodities to be priced in its own time zone, for products to possess regional characteristics and for there to be a high level of transparency. This shift will be accelerated by reduction in counterparty credit risk through clearing and better awareness of risk management practices, which are services exchanges will be able to offer.
For a full video interview with Barry Cheung, chairman at the Hong Kong Mercantile Exchange, don't forget to check out Energy Risk's special coverage from Hong Kong and Singapore throughout the week and for special video broadcasts from the October 5 onwards.
Copyright: Energy Risk
