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China is considering the introduction of Qualified Foreign Institutional Investors (QFII) into its futures market in an attempt to boost the sector, said an official at the China International Derivatives Forum concluded Sunday in Shenzhen, south China's Guangdong province.
Fan Fuchun, vice-chairman of the China Securities Regulatory Commission (CSRC), said that the nation will gradually open the futures market through active study on the idea of introducing QFIIs into commodities futures trading.
"China's futures market is facing a historic moment; we will seize this opportunity to push its development through measures such as improving the legal system and being properly prepared for the introduction of financial futures products," he was quoted by the newspaper as saying.
The government is also mulling over other ways of stimulating the futures market, which has been marginalized in recent years.
The futures industry, which began in China in 1993, is currently facing problems. It achieved a trading volume of 10,823 billion yuan (US$1,339 billion) in the first 10 months of this year, down 13 per cent from the same period of last year.
The entry of QFIIs will be a boost to China's futures market as it will force domestic players to improve their performances. But the QFIIs probably don't have a big appetite for the market right now because the choice for them is rather limited and the volume of commodities trading is small, according to Chen Xiaodi, a researcher at the China International Futures Co, Ltd, the country's largest futures brokerage.
Only nine commodity items are currently traded in China's three futures exchanges, but there is no trading of financial derivatives.
Many experts say introducing financial derivatives products is something that "cannot happen too soon" if the futures market is to get a boost.
"Only after the (financial) derivatives market takes off will QFIIs become really interested," Chen was quoted as saying.
Under China's World Trade Organization (WTO) entry agreement, the futures market is the only financial sector that has no set timetable for its opening-up.
But China is moving fast in this regard and taking other measures to boost the futures market.
ABN Amro Bank NV, one of the world's largest banks, became the first foreign institution to team up with a local futures house, China Galaxy Futures Co Ltd, after it got the go-ahead from the CSRC late last month.
According to the existing rule, futures companies can only conduct brokerage business, seriously hampering their growth. The revision of the rule would broaden business scope for futures companies.
Market observers expect that under the revised rule, futures companies could conduct futures investment fund management and custodian wealth management businesses.
Yang Maijun, director of the CSRC's futures supervision department, said that a protection fund for futures investors is likely to be inaugurated in 2006 as a move to strengthen market confidence and spur the development of the futures market by beefing up the protection of investors' rights.
(Xinhua News Agency December 5, 2005)
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