It has taken China 25 years since the idea of running the country’s own yuan-denominated oil futures was first proposed. Now, the Shanghai Futures Exchange has launched its first commodity derivative open to foreign investors. This is a significant move for China’s policy on energy safety and its being able to set rules and prices for oil sold in the region. It also marks a milestone for Shanghai to become a global financial centre.

Hitherto, the crude oil benchmark has been dominated by the Intercontinental Exchange’s Brent and New York Mercantile Exchange’s West Texas Intermediate. By denominating oil contracts in yuan, it will help promote the use of the currency in international settlements and set up an alternative benchmark to reflect the grades of oil that are mostly used in regional refineries and differ from those for Western contracts.

Since last year, China has surpassed the US as the world’s largest crude importer, giving it an impetus to develop its own futures market. Back in 1993, China already had domestic crude futures, but they were discontinued a year later because of excess volatility. The last time Shanghai introduced a futures market for a major commodity, it was nickel in 2015. In less than two months, trading exceeded that for the benchmark on the London Metal Exchange. There is no reason not to expect oil futures will not become a major market in time. However, domestic investors tend to pay a much larger role in such a market. The crucial test is to attract foreign traders. Global commodity giants Glencore and Trafigura Group are among 19 overseas brokers already trading in the Shanghai market.

However, there will have to be accommodation between foreign players and the central government, given the latter’s penchant for occasional intervention. In the case of nickel, steep price rises led the authorities to impose tougher trading rules, higher charges and shorter trading hours. Capital controls may also be an issue, though they may well be lightened.