China mulls allowing foreign investment in futures markets

Updated at 4.32pm:
China may allow foreign groups qualified to operate in the domestic stockmarket to invest in the country's futures exchanges in hopes of giving the fledgling sector a boost, state press reported on Monday.

China was in dire need of risk management mechanisms to safely navigate its financial links to the rest of the world, the China Daily quoted Fan Fuchun, vice-chairman of the China Securities Regulatory Commission, as saying.

"We will actively study the idea of introducing QFIIs [qualified institutional investors] into commodities futures trading and gradually open the futures market," Mr Fan said.

Introduced two years ago, the QFII system currently allows foreign investors to carry out brokerage and investment services in China's ailing stock-markets.

Experts say that introducing financial derivatives products must happen as quickly as possible if the futures market is to see healthy expansion and attract foreign interest.

China's commodities futures saw trading volumes of 10.82 billion yuan (HK$10.4 billion) in the first 10 months of this year, down 13 per cent from the same period last year, the report said.

Nine commodities are currently traded on China's three futures exchanges in Shanghai, Dalian and Zhengzhou, with no trading of financial derivatives.

However warrants - equity derivatives - just recently started trading on the stockmarket.

"Only after the [financial] derivatives market takes off will QFIIs become really interested," Chen Xiaodi, a researcher at the China International Futures, said.

Under China's accession agreement to the World Trade Organisation, the futures market has no set timetable for opening up, unlike the banking industry which is due for full liberalisation by the end of next year.