Unlike the country's stock market, which has been opening up to foreign investment, China's futures industry will remain closed for now due to its relatively small market scale, analysts said.

Although the Qualified Foreign Institutional Investor (QFII) scheme has allowed foreign investment to enter the stock market, it is still premature and impractical to apply similar measures to the futures market, they said.

Foreign futures companies have shown little interest in China's three futures exchanges, which only trade seven types of commodity futures with a paltry combined annual turnover of 3 trillion yuan (US$360 billion), as compared to the average daily volume of US$3 trillion at the Chicago Mercantile Exchange.

This, combined with the fact that many foreign-invested companies are already hedging Chinese contracts, through illegal channels, has left few overseas firms showing interest in obtaining immediate market access.

Ma Wensheng, president of CIFCO (Shenzhen), a major Chinese futures brokerage, said: "The scale is just too small."

Assistant Chairman of China Securities Regulatory Commission (CSRC) Wang Jianxi said last month that the commission was considering implementing measures similar to the QFII in the futures market, fuelling speculation that the tightly controlled sector would be opening up.

The CSRC announced the QFII move last year, which, if implemented, would allow foreign investors to trade renminbi-denominated shares and treasury bonds.

Another CSRC official confirmed that the possibility was being examined, but hinted that there would be no immediate change. "It's still just an idea," he said.

Opening up of the futures market should start with joint ventures, which would also help the market continue to grow, analysts said, rather than opting for QFII-style approaches, which require strong interest from foreign investors and a relatively mature market.

Xia Hai, general manager for trading operations with the China International Futures Co Ltd (CIFCO), China's dominant futures trader, said: "Personally, I think joint ventures are a better choice. The domestic side takes a controlling stake first, and then loosens it over a period of a few years."

(China Daily April 1, 2003)