Goodbye Shanghai, hello Qianhai: HKEx’s quest for a metals connector – by Andy Home (Reuters U.S. – October 27, 2016)

LONDON – When Hong Kong Exchanges and Clearing (HKEx) bought the venerable London Metal Exchange (LME) in 2012, the narrative was all about China. HKEx was, it claimed, uniquely positioned to bridge the gap between the world’s oldest marketplace for trading base metals and the world’s largest market for those metals.

The exchange was already far advanced in constructing a stocks bridge between Chinese and international markets, subsequently realized in the form of the Shanghai-Hong Kong Connect pipeline. That, it was hoped, would be a template for something similar in the metals and wider commodities trading space. Yet four years on and there is no similar metallic product.

That is largely because the obvious Chinese partner, the Shanghai Futures Exchange (ShFE), which dominates industrial metals trading on the mainland, has shown a conspicuous lack of interest.

So time for Plan B. HKEx is going to launch its own mainland Chinese metals exchange with which to connect. But will it work and, equally importantly, what will it mean in terms of the uneasy stand-off with the Shanghai market?

While the purchase of the LME was all about China, it wasn’t a Chinese company that was actually doing the buying.

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