Distinguished guests, ladies and gentlemen:

　 Good afternoon!

　　I am from China Petroleum and Chemical Industry Federation (CPCIF). It is a great honor for me to attend this Crude Oil Sub-Forum hosted in Shanghai by Shanghai International Energy Exchange (INE) under Shanghai Futures Exchange (SHFE) at this critical juncture when China’s petroleum industry is faced with various pressures and challenges in industrial upgrading and restructuring. This is a wonderful gathering for industry experts, company representatives and financial elites from China and abroad to hold discussions and share experience and wisdom on the reform of the crude oil market and the development of the derivatives market.

　First, on behalf of the CPCIF, I would like to express our warm congratulations on the convening of this forum and our sincere appreciation to the SHFE for its long-standing and unremitting efforts in the development of China’s petroleum and petrochemical market system!

　　As an important primary energy for national economies, petroleum has made a tremendous contribution to China’s industrialization process and progress in human civilization, creating a splendid chapter in the history of human civilization. In the area of petroleum extraction and refinery, China has developed a huge industry chain and a huge consumption system, the combined value of which stands at more than RMB 6.5 trillion.

　　Since the beginning of the “13th Five-Year Plan” period, the international supply and demand landscape for conventional energy has been deeply “reshaped” by profound changes in the world’s energy mix, particularly the rise of clean energy and technological breakthroughs in unconventional shale oil and gas. Ongoing abundant supply of oil in international markets, lingering low oil price and the shift in the world’s oil consumption to the East have also presented challenges to China’s petroleum industry.

　　First, the petroleum industry’s sustainable development is restrained. Persistently low oil price has taken a heavy toll on the industry’s profitability and discouraged enterprises from undertaking risky explorations, resulting in a decline in oil exploration investments.

　Second, there are still challenges to China’s oil security. Currently, China’s dependence on foreign crude oil exceeds 65% and dependence on foreign natural gas is more than 33%, making China the largest oil and gas consumer and importer in the world. On the other hand, China’s domestic petroleum development has entered a new stage where low-grade reserves are explored, with growing difficulties in increasing production. In the context of opening up China’s oil market, oil security remains an important issue for China to address to ensure its energy security.

　Third, the oil market system is incomplete and China is yet to have a market system and a voice appropriate to its status as a major oil producer and consumer. Currently, international crude oil price is mainly dominated by international petroleum exchanges in New York and London and cannot reflect the reality of China’s domestic crude oil supply and demand. As a result, the price of oil imported by China is controlled by other countries and China is at a disadvantage in the international crude oil trade. During the accelerated modernization of China’s petroleum industry structure, we urgently need to enhance the soft power of China’s petroleum industry and market and increase China’s international influence and governance capacity in the global oil market and price system.

　We reckon that with the acceleration of China’s new industrialization, IT application, urbanization and agriculture modernization, China’s demand for petroleum and petrochemical products will keep growing for a longer period of time and the share of petroleum in China’s primary energy mix will also remain largely stable at the same time. The petroleum and petrochemical industry will also maintain its dominant position in China’s economy, especially during the process of building a moderately prosperous society in all respects. During this process, petroleum will remain an important strategic energy and bear great strategic significance for China’s development into an economic powerhouse and the acceleration of China’s modernization.

　Faced with the new situation and challenges and at this critical juncture for the growth of China’s petroleum and petrochemical industry from strength to strength, we must actively propel China’s energy revolution and reform in accordance with General Secretary Xi Jinping’s requirements. To do so, we must not only greatly develop new energy and green energy and expedite the transition and upgrading of the traditional oil industry, but also accelerate the reform and development of the oil and gas market by relaxing market access, improving market system development, implementing fair access to infrastructure and enhancing industry management and supervision, etc.

　The INE has been committed to the research and development of China’s crude oil futures over the years, making tremendous efforts in the development and promotion of China’s crude oil futures market. During this process, the INE has also experienced frustrations and confusions. As is the case for every endeavor, opportunities will always be seized by those who are well prepared.

　On the whole, China’s domestic crude oil futures are of important strategic and realistic significance to maintaining the security of China’s petroleum and petrochemical industry and facilitating its sound and sustainable development. Currently, it is necessary to launch China’s crude oil futures at the earliest possible day, considering that the conditions for the listing of crude oil futures are more mature, as reflected in the following areas:

　First, the national policy orientation and market conditions have become clearer. The Third Plenary Session of the 18th CPC National Congress set forth the need to “enable the market to play a decisive role in resource allocation”. We believe that China will steadfastly move towards a market economy, of which the crude oil futures market is an essential component. Currently, China is steadily advancing the reform of its petroleum distribution system and has granted the rights of crude oil import and consumption to dozens of private companies, further diversifying the market entities. These factors, particularly the relatively relaxed international crude oil markets and the shift in the worlds’ oil consumption to the East, have created better conditions for the launch of China’s crude oil futures.

　Second, after many years of research and preparation, solid progress has been made in the preparation for the listing of crude oil futures. China’s crude oil futures contracts and a set of trading rules have been completed and submitted to the competent authority, and all supporting measures are ready as well.

　Third, China has improved the legal and regulatory framework for its futures market. After many years of development, China’s commodity futures market has made great progress in such areas as regulatory system, laws and regulations, risk control, talent trainings, and development of institutions.

　Fourth, the successful operation of Shanghai’s fuel oil futures has laid a solid foundation for the listing of crude oil futures.

　Fifth, the internationalization of RMB facilitates the trading and clearing of crude oil futures to a greater extent.

　The accelerated development of China’s crude oil futures market is important not only for the financial sector, but also for the petroleum industry. We sincerely hope that the SHFE will expedite the development of China’s crude oil futures market in an effort to serve the development of China’s petroleum industry from strength to strength.

　Firstly, the futures and spot markets should be integrated for the purpose of serving the real economy. The spot market is the foundation of the futures market. However, due to historic reasons and China’s systems and mechanisms, China has not developed a unified, open and strong petroleum spot market trading system and the nationwide petroleum product delivery network and oil and gas storage and transport network are also apparently underdeveloped. Considering this, greater coordination and collaboration between futures and spot market participants are required for the launch and operation of the crude oil futures market. Market-based and standardized futures trading will contribute to the development and improvement of the spot market network system. In addition, futures knowledge trainings should be enhanced for market entities and particularly manufacturers to enable them to understand the futures market’s hedging function, gradually participate in futures trading, and leverage futures for their risk management.

　Secondly, the petroleum industry should be integrated with the finance industry to establish a fully-functional and multi-tiered petroleum financial market system. The sophisticated commodity, financial and capital markets are essential to ensuring and supporting the establishment and development of the petroleum futures market. Given the underdevelopment of China’s commodity, financial and capital markets, when promoting the integration between the financial industry and the crude oil market to provide investors with channels for maintaining and increasing their asset value, China should mainly use its domestic financial resources to influence crude oil price in order to mitigate vicious inflation triggered by speculation on crude oil price by international hot money.
　　

　Thirdly, opening-up efforts should be combined with supervisory initiatives to establish more open and operational market trading mechanisms. The crude oil futures market is intended to provide a market for manufacturers, overseas investors, consumers and traders so as to increase China’s voice in oil pricing. Therefore, it is further important to establish a sound legal framework for the crude oil futures market and, in the form of legislation, explicitly provide for rights and obligations of all participants, trading rules, default liabilities and dispute resolution, etc. In connection with the development of the futures market, all contracts and trading rules should be prudently planned, designed and improved.

　Fourthly, the policy push approach should be coupled with the market pull approach. Sufficient participation of market entities and a certain level of trading volume are an important assurance for the liquidity of the futures market and the performance of its price discovery and hedging functions. At early days after the listing of crude oil futures, it is recommended to offer favorable policies such as lower fee rates to increase the attractiveness of the domestic crude oil futures market, encourage domestic companies to shift their hedging business from overseas markets to China’s crude oil futures market, and draw financial institutions, private investors and foreign investors to take an active part in trading of crude oil futures so that China’s crude oil futures market can quickly flourish with the joint participation of diverse investors.

　Dear representatives, during the “13th Five-Year Plan” period, China’s market-oriented reform of the petroleum industry will be deepened in all respects, which will give rise to higher requirements for the reform of the petroleum distribution system. We are convinced that an orderly and healthy crude oil futures market in China will inevitably be an important component of this market-oriented reform wave and also play a more important promoting and supporting and role in it. We sincerely look forward to the early launch of China’s crude oil futures so that the financial industry can contribute to the development of China’s petroleum industry from strength to strength!

　I also wish this forum a complete success! Thank you very much!