Decoding China’s Plan to Launch Crude Oil Futures

On Feb. 9, the China Securities Regulatory Commission announced that China would launch its crude oil futures contract on March 26. The Shanghai International Energy Exchange will operate the contract.

Why it matters: China’s new crude oil futures contract is part of the Chinese Communist Party’s (CCP) plan to internationalize the renminbi (RMB).

Our take:
1. In our December in-depth article, we wrote that CCP’s Belt and Road Initiative and RMB internationalization serve to resolve China’s overcapacity issues and an oversupply of currency. The introduction of yuan-denominated oil and gold futures contracts thus form a crucial part of the CCP’s economic strategy because countries now have an incentive to keep some RMB as a reserve currency.

2. The CCP is interested in expanding its economic influence to resolve domestic financial problems and challenge U.S. economic hegemony. This means that a trade war between China and the U.S. is unavoidable, and may have already begun.