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Hong Kong Exchanges urges patience on launch of metals trading business in China

Hong Kong Exchanges & Clearing Ltd.'s plan to develop the London Metal Exchange business in China, which includes setting up of a spot metals trading platform and introducing an LME-approved warehouse network, remained a key theme at the LME Asia Week this year in Hong Kong on May 17.

The bourse's CEO, Charles Li, said at the opening of the conference that the exchange will continue to collaborate and discuss with Chinese regulators on the initiative, but that it was a relationship that required patience and trust to develop.

The spot trading platform, which the bourse originally planned to launch in the free trade zone of Qianhai in the city of Shenzhen in the first half of 2017, had been delayed due to regulatory hurdles. The platform was considered as a first step of the bourse's plan to replicate the LME model in mainland China, according to Li Gang, the bourse's co-head of market development, in a previous interview.

However, commenting on a separate panel discussion at the event, both Li Gang and other panelists warned that it was challenging to develop the LME business in China due to concerns from regulators as well as competition from local Chines exchanges.

"Though it is a challenging task, we hope to work with the industry and carry out the plan. ... The progress has been slow," Li said.

He Jinbi, chairman and CEO of Maike Metals Group, one of China's largest metal traders, revealed that as a delegate of the 13th National People's Congress, he fielded an official proposal to set up LME-approved warehouses in Shanghai's free trade zone during the congress sessions in March.

"There is no law that forbids such an initiative … I hope to push through the proposal within my five-year term as an NPC delegate," He said, adding that introducing the LME model to China will benefit domestic producers.

Another Chinese major, Aluminum Corp. of China Ltd., also supported the proposal. Lu Dongliang, executive director and president of the aluminum major, said on the same panel that the lack of LME-approved warehousing has resulted in higher trading and operation costs for Chinese companies.

"If China is not doing it, then [the LME] will continue to set up such warehouses in neighboring [countries], which will increase the cost burden of Chinese companies," Lu said. Lu also pointed out that the LME's potential competitors, in the form of Chinese exchanges, may be against the initiative.

Maike's He added that domestic exchanges have been worried about potential competition and that it may reduce their own trading volumes. "It is up to the top regulators to decide on the proposal. … We are communicating with regulators through various channels. It is important to let them know what the metal industry needs," He said.