China promises to further open up futures trading

Agence France Presse

Shanghai, January 17:

Chinese officials have promised to further open the nation’s fledgling futures markets, allowing for financial joint ventures and Chinese companies’ trading of overseas contracts, state press reported on Monday.

The development of an effective and secure futures market was vital if China was to catch up with global economic trends and support domestic economic reforms, the China Daily quoted Fan Fuchun, vice chairman of the China Securities and Regulatory Commission, as saying.

“China will promote the opening of its futures market in an active but stable way,” Fan said, referring to the commonly used derivatives contract.

Futures contracts are financial instruments which can be used to protect investors against future price movements in a range of commodities, but can also be used for speculative purposes.

The first step would be to allow Hong Kong and Macau investors to buy into domestic futures firms as China implemented the Closer Economic Partnership Arrangement with the two regions, the newspaper said.

Overseas investors could hold up to 49 per cent in any futures joint venture, it said.

Qualified domestic enterprises would be allowed to trade futures contacts overseas, although trading must only be conducted for arbitrage purposes in order to avoid risks of major price fluctuations in global markets. Strict internal risk controls must also be guaranteed, Fan said.

Regulators were also designing a futures investors protection fund, which would offer appropriate compensation when lawful interests had been damaged. China opened a variety of futures markets more than decade ago, but soon shut them down after investors were rocked by a series of price-rigging scandals.

However, as market forces determine an ever larger share of the Chinese economy, the country’s authorities have been forced to gradually expand futures trading.