On July 21, Tianjin Dongjiang Bonded Port Area International Trade Service Co., Ltd. successfully completed the registration for the bonded warehouse receipt of 20 tons of linear low density polyethylene (LLDPE) futures. Thus, the operational processes such as cargo warehousing, quality inspection and warehouse receipt registration were implemented smoothly, showing that Dalian Commodity Exchange (DCE) has achieved substantial results in the pilot for the futures bonded delivery business at the Tianjin Dongjiang Bonded Port Area (TDBPA).
The warehouse receipt is expected to be delivered in August, and the TDBPA is also promoting the work in pledging of futures bonded warehouse receipts.
The futures bonded delivery refers to the process of futures delivery for the subject matters of the commodities carried by the futures contracts under the bonded supervision status within the special supervision areas of the customs or the bonded supervision places. The business extends the futures delivery areas from inside the customs to the bonded areas under the customs’ special supervision, thus transforming the commodities in the bonded areas into the commodities available for the delivery of the domestic futures contracts. Simply speaking, originally only after the import declaration can the imported goods be put into delivery, but with the bonded delivery implemented, the bonded goods can enter the delivery process from the bonded warehouses before the completion of the customs declaration without the necessity to clear customs and pay the import duties and related taxes in advance.
“The bonded delivery is internationally common and represents the inevitable direction when the global economy and trade develop to a certain stage, and the closed offers made in delivery in the bonded areas will facilitate the prices linkage with the international market. With the internationalization of the renminbi, the bonded delivery indicates that Chinese enterprises are meeting the demands of the world and China’s economy and trade are adapting to the demands of the international market,” said Hong Jiangyuan, chairman of Xiangyu Futures, a brokerage and service provider for Tianjin Dongjiang Bonded Port Area International Trade Service Co., Ltd.
In Hong’s opinion, the introduction of the bonded delivery business can meet the demands in three aspects, “First, it can meet the market demands. The continuously growing foreign trade volumes of Chinese enterprises will result in various options. For example, instead of being sold to the Chinese enterprises, the plastic products imported by my company could be sold to the enterprises in other countries. As a result, the goods will enter the bonded areas instead of being directly imported after paying the customs duties; second, it can meet the demands for cargo transshipment and storage. For example, there should be an international transshipment port for some products to be sold to various places in the Far East and the port should be a bonded port with no need to pay taxes as all the products are shipped to the bonded areas in Tianjin or Shanghai and then transported or sold to other places; third, it can meet the demands for trade financing. The goods shipped to the ports could be sold or not sold and the funds transformed into inventories will lose the liquidity. But the warehouse receipts or non-standard warehouse receipts generated in the futures delivery warehouses on the international market can be pledged in banks and the futures delivery warehouse receipts have high international liquidity. That is to say, an enterprise can seek financing channels at home and abroad by making use of the bonded ports while conducting futures hedging transactions.”
In early 2011, according to the instructions for “strengthening the efforts in expanding pilot in commodity futures bonded delivery” made by the chief of the China Securities Regulatory Commission (CSRC) at the national forum on futures regulatory work, DCE set the research in introducing the futures bonded delivery business as one of its key tasks. After surveys and selection, the LLDPE has finally been chosen as the first pilot product; with the strong support of the Administrative Commission of the TDBPA, the TDBPA has been selected as the first pilot area.
The selection of the TDBPA is not accidental. According to the sources, as one of China’s important areas for import and export of bulk commodities, Tianjin is the transportation center and logistics center in northern China. It is learnt that in the first half of this year, the TDBPA imported 54,000 tons of chemical products worth US$ 178 million, growing by 68% from a year earlier. Since TDBPA was approved for the pilot of the LLDPE futures bonded delivery business, its efforts in introducing enterprises and investments in the trade of chemical products have been promoted with the settlement of the enterprises such as China National Agricultural Means of Production Group Corporation, Tewoo Group Co., Ltd., Grand Resources Group, Pufeng Logistics, and Huahan Logistics, who are engaged in the businesses of import, logistics and warehousing of the LLDPE in the bonded area. Meanwhile, the TDBPA is discussing the cooperation with a number of related production companies.
The selection of LLDPE as the first pilot product is closely related to its characteristics and market position. LLDPE features large imports and exports and from its listing in July 2007 to the end of 2013, the LLDPE futures totaled a transaction of 360 million contracts (unilaterally), equivalent to 1.8 billion tons of spot goods, and attained a total of 745,000 tons in physical delivery. DCE has become the world's largest LLDPE futures market, with growing influence on domestic and international spot trade.
A DCE official said that the introduction of the bonded delivery, on the one hand, plays an important role in speeding up the internationalization of the LLDPE futures market and even China’s futures market as it can attract the enterprises in the bonded area as well as more international investors to participate in the trade on domestic futures market so as to further consolidate China’s position on the global bulk commodity market for plastic products. On the other hand, it can also achieve the adequate integration of futures finance and bonded logistics and is of great significance for promoting the upgrading and transformation of domestic and foreign trade in the bonded area, the steady growth of foreign trade and regional economic development as well as building the bonded area into core functional area of international shipping center in the region.
The official also said that in the next step, to meet market demand, the DCE is steadily pushing forward the internationalization of the iron ore product, and with a wealth of experience accumulated in the plastic futures, in the future DCE will make the bonded delivery of iron ore one of the points to make breakthroughs in the internationalization of the market.
Throughout the promotion of the bonded delivery business, the coordination and support of all the units has made the introduction of the business smooth. DCE joined hands with Tianjin state and local taxation authorities, the customs, Tanggu Administration of Foreign Exchange, Administrative Commission of the TDBPA, Suchuan Logistics and other units to set up the bonded delivery office, with the units performing their own duties, and after rounds of communication and demonstration, the overall draft plan for implementation has been formed and reported to the General Administration of Customs.
In September 2013, the General Administration of Customs issued a document for the approval of the pilot for the futures bonded delivery business for the bonded storage of imported LLDPE carried out through DCE in the TDBPA.
In March 2014, the CSRC approved DCE’s introduction of the futures bonded delivery business. Subsequently, the DCE further confirmed with Tianjin side on the details of operation and completed the development of relevant systems and the preparation for the business. On April 18, 2014, DCE issued the market notice on officially launching the bonded delivery business, entering the stage of business implementation.
To ensure the successful introduction of the bonded delivery business, DCE has specially designed the bonded delivery business system according to the operation flow, formulated detailed operational guidelines and communicated with clients, delivery warehouses and inspection institutions repeatedly in a bid to ensure the smooth operation of the business.
Hong said with emotion, “The whole process was very tortuous and time-consuming, with many details discussed and negotiated repeatedly, and many units have actively participated and contributed hard work. It is not the business only for the financial or futures industry but a system project which is something new for exchanges, banks, futures companies and enterprises.” He believed that the successful registration of the first futures bonded warehouse receipt in the TDBPA is of the significance of linking up the delivery process and plays a pioneering role in the normal trade and normal futures delivery in the future. With the improving awareness and growing demand of the enterprises, in the future this market will be expanded in products, places and other aspects, thus effectively serving the real economy and helping Chinese enterprises operate on the international market.
