Is Shanghai Ready to be Crowned as Asia’s New York?

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Next year, China launches options for rolled steel. The new financial tool aims to protect domestic manufacturers against risks of price changes. China, being one of the largest producers and consumers of steel in the midst of the trade war with the US, is seeking more levers of influence over prices.

After the 2008 crisis, Chinese authorities began to strengthen steel production to maintain the country’s economic growth. The measure, which at the time had a positive impact on the country, now represents a problem. Neither China nor the rest of the world needs so much Chinese steel. The World Steel Association estimates that, by 2020, China’s steel output will decline from 886 million tonnes to 842 million tonnes, but demand is also expected to decline.

This may cause the price of the metal to fall. China is therefore keen to influence production prices in order to protect its producers from excess volatility, Chen Fengying, an analyst at the Institute of International Economics at the Chinese Academy of Modern International Relations, said.

“The promotion of options for rolled steel is driven by the Chinese stock market as well as by the need to create a mechanism for price formation. It must be understood that China is dealing with an overproduction of steel. China has been expelled from the US market, so if China can create an options contract for rolled steel, it will strengthen Chinese positions in the influence on prices of production,” he said.

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Reuters reported that China plans to launch the options in May 2019. In this case, most of the dealings in Singapore’s main Asian options market will be traded in China, Fengying believes. However, according to him, Beijing has no need to compare itself with Singapore, having another goal.

“China’s goal is very clear: to make Shanghai the Asian trading center for futures contracts by 2020,” he said, adding that another major goal of the Asian giant is to make Shanghai the Asian financial center.

“The Chinese market has great potential, since from the financial point of view Shanghai will become the analogue of London or New York, so our goal is not competition with Singapore. Having a good location, as well as the size and unity of the people, it makes it a good financial center,” believes Chen Fengying.

Over many years, competing for the title of Asian financial center, are Hong Kong, Shanghai and Tokyo. Apparently, Shanghai has the highest chances. In 2009, the volume of its economy exceeded the level of Hong Kong’s GDP. In addition, the performance of the yuan in the world economy is growing. Now, 1.39% of central bank reserves is the Chinese national currency, formerly 1.08%.

In addition, Chinese authorities have been promoting stock trading in Shanghai. On the Chinese stock exchange, futures contracts are being negotiated for silver, gold, steel and aluminum. At the end of March, the first standard oil contract denominated in yuan was issued.

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