Financial futures are poised to return to China's market after
being banned for almost 12 years.
According to a new set of regulations governing futures trading,
announced on Saturday, financial futures, which include interest
rates, foreign exchange rates and stock indices, can now be
traded.
Professionals in the financial industry cheered. Some economists
are worried. But most people simply ignored the news because there
are not many links between their lives and these highly technical
finances.
However, for China's millions of stock investors, this could be
a far-reaching development. Stock market index futures, which will
offer money-making opportunities for those betting on different
market movements, will help iron out fluctuations in the stock
market.
Financial futures are also important for those planning China's
financial reforms because it will be very difficult to push for
further liberalization of interest rates and the foreign exchange
rate in a shallow financial market. Currently, neither the interest
rate nor the foreign exchange rate is completely determined by the
market. But China has to achieve this market link if it wants to
allocate its financial resources more efficiently. Opponents of
reopening the financial futures market believe the financial
market's institutional infrastructure is still not strong enough to
support the complicated and, possibly, speculative business.
Indeed, the treasury bond futures market's debacle in 1995
remains a vivid reminder of the shocks and losses a
loosely-regulated market can cause. The market drama, brought about
by a brokerage attempt to manipulate the market, directly led to
the closure of the two-year-old market.
However, opponents must admit that regulators have been drawing
on the experience gained through operation of the markets in
stocks, futures, and foreign exchange, both positive and
negative.
It is certain that regulators will take a cautious, incremental
approach in developing the market.
The needs of a maturing financial industry, and, indeed, of the
entire economy justify a new start with the financial futures
market.
Opposing the market's reopening will not necessarily mean more
financial security. The scarcity of advanced financial tools in an
increasingly sophisticated economy will actually add to financial
risks in the form of huge swings in the stock market and low
quality banking assets.
(China Daily March 20, 2007)