Time to strengthen financial economy

On March 26, 2018, China will launch yuan-denominated oil futures contract, convertible into gold on the Shanghai and Hong Kong stock exchanges, which could become another benchmark for crude oil. Usually, crude oil priced in Brent and West Texas Intermediate futures is denominated in US dollars. But it is still too early to say whether it will challenge the dollar's position and to what extent it would revise oil pricing model. However, the move is a good opportunity for China and the Gulf Cooperation Council member countries to strengthen their economic ties, and explore new areas for cooperation to extend their economic relations beyond energy exchange.

Basically, the need for such an oil futures contract emerged because of domestic developments, especially in the real economy. China and the GCC both are in the process of economic transformation. China emphasizes quality, slower but sustainable, and inclusive growth, and is on way to becoming a consumption-driven and service-led economy, while tackling short-term risks and long-term challenges.

The GCC requires to adapt to a "new oil normal", for which it has to reform the economic structure and shift its economic focus from oil. Apart from looking for non-oil growth drivers domestically, the GCC also has to seek more trade partners and diversify its financial assets and investment portfolios so as to build buffers against financial shocks. Such an economic structural adjustment has laid a foundation for both sides to establish a closer relationship. In particular, China's strong and stable economy provides the potential for deeper economic relations with the GCC.