By Sajith Kumar
The importance of Futures markets in any country’s economic development is an undisputed argument now a days. Globally, all major economies have the backing of well organized Futures markets with widening product varieties and deepening liquidity pools.

Let’s examine how China, one of world’s fastest growing economy, has benefited from its Futures market.

China has three commodity futures exchanges situated at Zhengzhou, Dalian and Shanghai and all these three exchanges are playing an increasingly important role in serving the Chinese economy.

Zhengzhou Commodity Exchange (ZCE), the first experimental futures market approved by the State Council, was established on Oct 12, 1990. The ZCE, which started with forward contract trading, launched its first futures contracts on five agricultural products - wheat, corn, soybean, green bean and sesame on May 28, 1993.

It still specializes in agricultural and chemical product futures, including hard white wheat, strong gluten wheat, sugar, cotton, rapeseed oil and PTA, a petroleum-based chemical product.

Three years after the establishment of ZCE, Dalian Commodity Exchange announced it would trade in futures contracts underlined by a variety of agricultural produce, mainly grown in Northeast China.

So far, futures contracts on soybean, soybean oil, corn, palm oil, soymeal and LLDPE, a petroleum-based product, are traded on the Dalian bourse.

In 1999, Shanghai Futures Exchange was established and China's futures trading were expanded to metal and energy products. Now it deals in six futures products - copper, aluminum, zinc, gold, fuel oil and natural rubber.

The demand for commodity futures as hedging tools has been on the rise as Chinese economy continues to advance at a brisk pace. China is now one of the largest producers and consumers of a wide range of commodities, including oil, steel, copper, corn, wheat and soybean.

To diversify their product ranges, the nation's three commodity futures exchanges are doing research to introduce new contracts.

For example, the Shanghai bourse plans to launch new contracts on nickel, silver and steel futures in the coming years. The Zhengzhou bourse is preparing to launch early long-grain non-glutinous rice futures, while the Dalian bourse is preparing to introduce hog futures to protect hog breeders from being exposed to sharp price swings.

China Financial Futures Exchange, the country's first financial futures exchange, was inaugurated in October 2006. The long-awaited CSI300, the first mainland stock index futures, will be traded on this bourse, which is putting the finishing touches to the launch.

The past year has seen these futures exchanges as well as China's futures market expand rapidly. The combined turnover of the nation's three commodity futures exchanges totaled 40.97 trillion yuan (US$5.992 trillion) in 2007, up 95 per cent from the year before.

The aggregate trading volume of these exchanges amounted to 728.46 million hands in 2007, up 62 per cent over the previous year. More than half of the transactions took place on the Dalian bourse, while turnover on the Shanghai bourse amounted to 23 trillion yuan, accounting for half of the total.

Economists maintain that China, as a major producer and consumer of commodities, has great potential for developing its futures market. China's commodity futures markets are thus 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.

India’s fledging futures trading market has a lot to learn from its Chinese counterpart.

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