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--Clyde Russell is a Reuters market analyst. The views expressed are his own.--
By Clyde Russell
LAUNCESTON, Australia, Nov 14 (Reuters) - China's leadership plenum may have disappointed with sparse details about economic reforms, but there was enough to suggest the potential for major changes in way the country buys and trades commodities.
The key elements from this week's meeting of the ruling Communist Party's Central Committee were that markets would take a "decisive" role and that this would happen by 2020.
If the Chinese do free up capital controls and welcome foreign participation in their markets, then the way the world trades commodities is likely to change, and in broad terms, the six years between now and 2020 is a short time frame.
For a clue on how this might progress, look at the recent and ongoing moves to establish futures markets in key commodities.
China is the biggest buyer of coal, iron ore, copper, rice, soybeans, as well as a host of minor metals and agricultural commodities. It ranks second in crude oil imports and is expected to become the second-biggest wheat buyer this year.
The Chinese authorities are known to be concerned about the pricing of several commodities, believing producers and traders exert too much influence over the market, often leaving consumers with a raw deal.
Establishing price benchmarks for major commodities, especially those that lack well-developed and liquid global markers, is probably viewed by China as key to getting prices more reflective of its status as the world's biggest commodity buyer.
However, the dilemma for the Chinese authorities is that the desire to exert more influence on the pricing of commodities is inconsistent with the idea of opening up the markets in order to ensure pricing transparency.
It's perfectly logical that there should be China-based deliverable contracts for iron ore, crude, coal, rice and a plethora of other commodities, but in order for them to work well, all market participants must be welcome and able to trade freely.
It's here that the decision by the Communist Party conclave to let the markets take the lead may be important, if it translates into a free-floating currency and commodity exchanges that aren't more regulated than their counterparts in developed economies.
The new contracts for iron ore and coal have attracted strong volumes and interest across the board, from overseas producers to domestic consumers, but they are unlikely to supplant existing benchmarks as long as the spectre of Chinese government control looms over them.
So far, the bulk of the volumes have been made up by smaller-scale domestic investors of the kind that provide much liquidity and volumes to agricultural contracts on platforms like the Dalian Commodity Exchange.
The Shanghai Futures Exchange plan to launch contracts for crude oil delivered to China will appeal to domestic market participants, but will it be attractive enough to foreign producers and traders?
In addition to the problems of yuan convertibility and regulation, the small pool of large buyers for many commodities may undermine the development of deliverable Chinese futures contracts.
Take crude oil, where Chinese buying is utterly dominated by the two state-owned majors, Sinopec and PetroChina, with independent refiners and traders restricted in their market participation.
It would be hard to find many in the Asian oil markets who think that pricing the region's crude from the small pool of crude that makes up the Brent benchmark is a good idea.
But ask them if a contract delivered into China with only two buyers is a better idea and the answer would probably be no.
China's iron ore and coal markets may have a bigger pool of buyers, but they are still largely the preserve of large, state-controlled entities.
This situation doesn't look like changing soon, with the Communist leadership committing to maintaining the strength of the public sector in the economy.
The message for China's leadership is clear if they want to genuinely change the way they buy and pay for commodities, they should:
-- establish a genuine market economy with free access and financial transactions and an independent regulator. The proposed Shanghai free trade zone offers this chance.
-- break up the massive state-controlled companies and allow internal competition to flourish.
-- work with producers, traders, banks, exchanges and foreign governments to ensure the development of open markets.
-- accept that all this will provide more pricing transparency, but at the cost of maintaining outright control.
So far, all we have from China is a somewhat vague commitment from the authorities that they intend to move in this direction.
The concrete steps they take will determine whether China is able to do what it should, namely establish relevant and dominant commodity benchmarks for the world's biggest buyer. (Editing by Muralikumar Anantharaman)