THE government will waive income tax for three years for foreign investors trading the country’s new crude futures contract, the Ministry of Finance said yesterday, in a bid to attract overseas capital for the much-anticipated launch.

The start of trading next week will mark the culmination of a years-long push by China to create Asia’s first oil futures benchmark, and is aimed at giving the world’s biggest oil importer more influence in pricing crude sold to Asia.

It will potentially give the Shanghai International Energy Exchange (INE), which will operate the new contract, a share of the trillions of dollars each year in oil futures trading.

The Finance Ministry said foreign brokers will be exempted from paying income tax on commissions they earn from dealing in the new Shanghai crude futures.

The tax exemption could help encourage foreign players to engage with the new contract, despite concerns about issues such as foreign exchange conversion and potential capital curbs.

The number of foreign investors seeking to open non-resident accounts to allow trading has so far been below expectations, said a source at CITIC, one of eight banks that is handling margin deposits for foreign investors.

The oil market is closely watching the liquidity of the contract, as institutional investors and brokers expect trading volumes and open interest to be relatively small compared with China’s iron ore, copper and steel futures contracts.

China in recent days has provided more details on the contract, including margins, trading limits and transaction fees, and has approved the use of six bonded storage warehouses.

The INE, which is part of the Shanghai Futures Exchange, said Feb. 9 it would launch the much-delayed contract next Monday.

The INE said last week that it has set margins for China’s crude oil futures at 7 percent of contract value.

The up-down trading limits for the crude oil futures would be set at 5 percent, although with the allowed range on launch day to be 10 percent either way, it said.

The INE set transaction fees for crude futures at 20 yuan (US$3.16) per lot of 1,000 barrels. Currency conversion rates are to be based on the yuan-to-U.S. dollar exchange mid-point from the day before, it said.

(SD-Agencies)