Bank of China Sees Gold in Global Commodities Trade 中行赴全球商品市场淘金

By newsdoug on March 1, 2012

Bank of China sees gold in global commodities trade I often write about China’s banks collectively as a group, as there’s little to differentiate them from one another in their home market where they act mostly the same, taking all their orders from Beijing. But it’s a different story on the global stage, where Bank of China (HKEx: 3988; Shanghai: 601988) is making some recent interesting moves to position itself as a key intermediary in China’s growing participation in global commodities markets as its resource firms expand their activities abroad. In the latest move on that front, Bank of China has formed a tie-up with US-based CME, the world’s largest operator of futures markets, according to a domestic media report. (English article) The tie-up will allow Bank of China to act as an agent for buying and selling of futures contracts on all of the CME’s markets, allowing it to serve a growing number of Chinese resource firms that are likely to tap into those markets as Beijing gradually allows them to expand their activities abroad. Most of China’s resource companies are now limited to trading on China’s domestic futures markets, which are largely closed to foreigners and don’t always fully reflect global trends. Bank of China signed a similar contract with the London Metals Exchange (LME) last month, giving it similar rights to trade on Europe’s biggest metals exchange, showing it intends to be a serious player in this potentially lucrative market. (English article) Perhaps most intriguing in this pair of new deals are comments by a Bank of China official in the latest CME agreement saying the bank wants to eventually offer yuan-denominated settlement services on the CME’s exchanges, which could be attractive not only to Chinese companies but also to the growing number of foreign firms who do big business with China. As a Chinese bank, Bank of China would have a natural advantage in offering yuan-denominated services over foreign rivals, giving it a lucrative niche market with lots of potential. This push looks similar to what ICBC (HKEx: 1398; Shanghai: 601398), another of China’s big 4 banks, is trying to do with its own big push to offer yuan services overseas, including providing yuan for a small group of nations that want to add the currency to their foreign exchange reserves. (previous post) These kinds of moves, while probably encouraged by Beijing as part of its broader push to internationalize the yuan, are one of the few things that differentiate the big banks from one another for stock buyers trying to decide which bank they like best. That said, revenue from international markets is still just a tiny part of the total business for all of China’s banks, though it certainly provides an interesting indicator of where each sees its future growth prospects.

Bottom line: Bank of China’s aggressive move into global commodities trade will position it as a major intermediary as China’s resources companies become more active abroad.

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