By Wang Lan (China Daily)
Updated: 2008-01-28 09:52

With total turnover exceeding GDP for the first time, China's futures market has grown significantly in the past year, reaffirming analysts' optimistic outlook for 2008.

Economists maintain that China, a major producer and consumer of commodities, has great potential for developing its futures market.

The combined turnover of the nation's three commodity futures exchanges totaled 40.97 trillion yuan in 2007, up 95 percent from the year before. Shanghai Futures Exchange turnover was 23.13 trillion yuan, while the Dalian Commodity Exchange and Zhengzhou Commodity Exchange had a turnover of 11.92 trillion yuan and 5.92 trillion yuan respectively.

The aggregate trading volume of the three exchanges was 728.46 million hands, up 62 percent over the previous year. More than half of the transactions were completed on the Dalian bourse, while turnover on the Shanghai exchange amounted to 23 trillion yuan, accounting for 50 percent of the total.

China's commodity futures markets are stepping up efforts to expand product ranges and deepen liquidity pools to cater to the increasingly diverse needs of the nation's rapidly growing economy.

The past year has seen a large expansion of products. The Shanghai exchange launched zinc futures in April. The Zhengzhou bourse kicked off trading in rapeseed oil futures in June while the Dalian bourse started trading LLDPE, a petroleum-based chemical, in July and palm oil in October.

Analysts say domestic futures markets will make key progress in 2008 with the expected introduction of CSI300 index futures, the mainland's first financial futures product.

The Shanghai-based China Financial Futures Exchange (CFFEX), where the mainland's first index futures product is to be traded, has approved 65 member futures companies, widely seen as a major step toward launching the CSI300 index futures.

The Shanghai Futures Exchange (SHFE), which specializes in metal and energy products, has just kicked off gold futures contracts in January this year. It is also planning to introduce steel futures contracts in the foreseeable future. SHFE is also researching new futures products in the coming year or two, including crude oil and copper options.

Futures markets in Dalian and Zhengzhou, both specializing in agricultural produce, have revealed similar expansion plans.

Liu Xingqiang, general manager of the Dalian Futures Exchange, says several new futures contracts on agricultural produce are being researched. "Of those being researched, priority has been given to hog and coke futures contracts," said Liu. "We also want to improve the design of the existing contracts to enhance market efficiency."

Analysts said the introduction of hog futures would help stabilize pork prices and push forward the process of restructuring the industry.

The rising pork price has been blamed as a major factor in the building inflationary pressure that has driven the consumer price index to a projected 4.4 percent.

Qiao Jinhui, director of the Zhengzhou exchange's communications department, says the bourse is taking steps to launch new futures products, including contracts on early long-grain non-glutinous rice, raw silk, natural gas, pure alcohol and methyl alcohol.

The commodity futures products traded on the three mainland exchanges have been expanded from 12 to 17. Compared with a total of more than 100 futures products actively traded on the international futures markets, China still has a long way to go, experts say.

Analysts say the imbalance between China's rapidly growing economy and the current size of the domestic futures market has become a negative factor working against the nation's sustainable development in the long run.

They expect further opening up of the domestic futures market in 2008, with the government loosening restrictions on the participation of foreign financial institutions in the market.

There are currently three futures companies with foreign shareholders, but the overseas financial institutions are not allowed to hold majority stakes in the joint ventures.

In March 2007, French firm Calyon Financial formed a joint venture futures brokerage with China CITIC Group to stake a claim in the mainland's potentially lucrative futures market. In September, JPMorgan also said it would establish a joint venture with Guangzhou-based Zhongshan Futures. And ABN AMRO Bank earlier bought a minority stake in Galaxy Futures.

Analysts say that with the mainland financial sector opening further, an increasing number of foreign institutions are expected to participate in the booming Chinese futures market.

They expect China's demand will remain the major force driving commodity prices on the global market.

"Commodity prices are expected to see a general upswing in 2008," says Li Jingyuan, an analyst at Haitong Futures Co in Shanghai. Li added that the domestic futures market would exert an increasingly important influence in setting prices for the global market.

"In 2008, the widening futures market in China will further strengthen its role as a reliable indicator of the domestic supply and demand of underlying products," says Ma Xiaofei, an analyst at China International Futures (Shanghai) Co.