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China opened up its futures sector yesterday, allowing foreign-funded companies in the country to hold stakes in domestic futures brokerage firms.
In a circular published in the securities press, the China Securities Regulatory Commission (CSRC) lifted earlier restrictions on the types of investors in futures brokerages and opened the door to foreign-funded companies registered in China, as well as non-banking financial institutions.
That will give much-needed encouragement to the futures market, which is recovering from a decade-long market clear-up of some corrupt and fraudulent practices. It also needs to develop faster in the wake of China's accession to the World Trade Organization (WTO), which requires an opening of China's capital market. Chang Qing, vice-president of the China Futures Association, said domestic futures brokerages will be strengthened by both a broader range of investors and an injection of foreign expertise, energizing the entire futures market.
According to the CSRC circular, a company should hold a minimum registered capital and net assets of 10 million yuan (US$1.2 million) each to be able to buy stakes in Chinese futures brokerages. The company should also have been cleared of committing any major irregularities in the previous two years.
They are also required to post their profits for the last two years, except for those firms with registered capital and net assets each exceeding 50 million yuan (US$6 million).
"That is in line with relevant regulations on foreign investment in domestic industries. Those companies that qualify can start to make progress," said Xia Hai, trading operations general manager at the China International Futures Company (CIFCO), China's dominant futures trader.
He said that the latest moves are likely to be followed by a further opening-up of the sector, allowing foreign traders to directly participate in futures trading in China, although it is unclear when this change will take place.
Securities houses, financial consultancies, leasing and trust firms are the major domestic beneficiaries of the CSRC's lifting of the six-year ban to permit them to buy into the futures brokerages.
Banks and insurers remain unable to take part in the business due to the segregated regulatory scheme in the three financial arms of securities, banking and insurance. But insurance companies may also get the green light soon, said Chang.
Strict control of the inflow of banking assets into the securities and futures market is based on risk concerns, a CSRC spokesman said.
(China Daily January 24, 2003)
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