Published On: Mon, Mar 15th, 2010

NPC Deputy Liu Xingqiang Speaks on the Futures Market in China

NPC Deputy Liu Xingqiang: The futures market should better service the changing mode of economic development and the altering economic structure.

On March 5th, after hearing Wen Jiabao’s “Government Report”, National People’s Congress Deputy Liu Xingqiang, president of the Dalian Commodity Exchange, said to the Futures Daily that the government’s report, under the new circumstances presented, presents the development and functional roles of the domestic futures market with new requirements. Altering the mode of economic development and optimizing the economic structure will require new and modern market mechanism, and the futures market will make new contributions toward these goals.

“The futures market is a high-end, modern market system, and its unique features of price discovery and risk prevention lend authority to price references, offer market players an effective hedging tool, improve the adaptability of competitiveness of market players, allocate market resources more efficiently, promote the adjustment of the economic and industry structure and gives us the right to speak in the international market,” said Liu Xingqiang. The present efforts to move toward a low-carbon economy is one way that the mode of economic development is changing, and this transition also represents the continuing creativity of both domestic and international derivatives markets.

The futures market has already played a positive role in altering the mode of economic development and optimizing the economic structure. “Faced with the financial crisis in 2008, a large number of corn and soybean enterprises were able to utilize the futures market and hedge against risks and minimize losses. Even though LLDPE and PVC have not been listed for a long time on the market, a large number of enterprises, by utilizing the market’s features of price reference and hedging trades, have been able to alter the traditional patterns in the market and thereby gained more control over the market,” reported Liu Xingqiang. A number of market products, such as corn and soybeans, have already become the benchmark market price formation centers. They have also become farmers’ price reference and have changed the planting structure and relevant business operations. The futures market acts as a “weathervane” for many farmers and businesses, and it has raised China’s influence over the related products in international markets. The futures market has also played a large role in the development of farmers’ income, business efficiency and the sustainable development of related industries. At the same time, relying on the futures market, commodity production, consumption and circulation, everyone is able to refer to price expectations and take appropriate steps to effectively realize the convergence of production, supply and sales, as well as promote the coordinated development of the regional economy.

In order to better control the path of macro-economic development, the relevant governmental departments have begun to pay closer attention to futures prices in the development of policy and the evaluation of the effectiveness of the controls. The development of the futures market has also contributed to a more unified national market and has promoted the production and marketing of linking up the development of various regional markets.

The further development of the futures market will better serve the new requirements brought about the altered modes of economic development and the optimized economic structure. Liu Xingqiang believes that when compared with more developed futures markets, we can find a number of problems with the domestic futures markets: the number of industries covered are relatively small, investment and hedging options are limited, the investor structure is irrational, and so on. The development of a modern futures market should start by dealing with the aforementioned key issues, with a focus on institution innovation and further accelerating the development of the futures market. In this way, the futures market will play a wider and deeper role in the economy as a whole, as well as promote connotative economic development, improve the flexibility of the economy and better service the changing mode of economic development.

“The DCE, based on the new requirements of the government and in accordance with The National Work Conference on Securities and Futures Regulation, will make further efforts to enhance basic system construction and prevent market risk to ensure the safe and sound operation of the futures market. The DCE will also further pursue product innovation to promote the functions of the market and strengthen its market service capabilities to better meet the changing patterns of economic development. The futures market will rise to the occasion and fulfill its role in promoting sound and fast economic development.”

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