Commodity trading in China
Encyclopedia
Commodity trading in China has a short but high-growth history. With an increasing product variety and deepening liquidity pools, the mainland's futures market is playing an increasingly important role in serving the national economy
.
At present, the commodities markets in China are still in a development stage, with only a few exchanges in China trading in a small group of commodities. In the next few years, the Chinese government will gradually allow more commodities products to be traded in China along with various related derivatives
.
The boom of large trading market across the country has contributed to the increased flow of vegetables and fruit from south to north and west to east and promoted the country's commercialization
of agricultural products.
tools has been on the rise as the Chinese economy continues to advance at a brisk pace. The country 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
.
As a major producer and consumer of commodities, China has large potential for developing its futures market. China's commodity futures markets have expanded product ranges and deepened liquidity pools to cater to the increasingly diverse needs of the nation's rapidly growing economy.
With increasing volatility in global commodity markets and prices, companies have been expanding their agricultural product, precious/base metal, fuel oil and other commodity-related investments in China.
The China Financial Futures Exchange
(CFFEXhttp://www.cffex.com.cn/), 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 working to the launch.
Economy of the People's Republic of China
The People's Republic of China ranks since 2010 as the world's second largest economy after the United States. It has been the world's fastest-growing major economy, with consistent growth rates of around 10% over the past 30 years. China is also the largest exporter and second largest importer of...
.
At present, the commodities markets in China are still in a development stage, with only a few exchanges in China trading in a small group of commodities. In the next few years, the Chinese government will gradually allow more commodities products to be traded in China along with various related derivatives
Derivative (finance)
A derivative instrument is a contract between two parties that specifies conditions—in particular, dates and the resulting values of the underlying variables—under which payments, or payoffs, are to be made between the parties.Under U.S...
.
Size
The combined turnover of the nation's three commodity futures exchanges totaled 40.97 trillion yuan in 2007, up 95% from the year before. The aggregate trading volume of these exchanges amounted to 728.46 million hands in 2007, up 62% 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.The boom of large trading market across the country has contributed to the increased flow of vegetables and fruit from south to north and west to east and promoted the country's commercialization
Commercialization
Commercialization is the process or cycle of introducing a new product or production method into the market. The actual launch of a new product is the final stage of new product development, and the one where the most money will have to be spent for advertising, sales promotion, and other marketing...
of agricultural products.
Development
The demand for commodity futures as hedgingHedge (finance)
A hedge is an investment position intended to offset potential losses that may be incurred by a companion investment.A hedge can be constructed from many types of financial instruments, including stocks, exchange-traded funds, insurance, forward contracts, swaps, options, many types of...
tools has been on the rise as the Chinese economy continues to advance at a brisk pace. The country is now one of the largest producers and consumers of a wide range of commodities, including oil
Oil
An oil is any substance that is liquid at ambient temperatures and does not mix with water but may mix with other oils and organic solvents. This general definition includes vegetable oils, volatile essential oils, petrochemical oils, and synthetic oils....
, steel
Steel
Steel is an alloy that consists mostly of iron and has a carbon content between 0.2% and 2.1% by weight, depending on the grade. Carbon is the most common alloying material for iron, but various other alloying elements are used, such as manganese, chromium, vanadium, and tungsten...
, copper
Copper
Copper is a chemical element with the symbol Cu and atomic number 29. It is a ductile metal with very high thermal and electrical conductivity. Pure copper is soft and malleable; an exposed surface has a reddish-orange tarnish...
, corn
Maize
Maize known in many English-speaking countries as corn or mielie/mealie, is a grain domesticated by indigenous peoples in Mesoamerica in prehistoric times. The leafy stalk produces ears which contain seeds called kernels. Though technically a grain, maize kernels are used in cooking as a vegetable...
, wheat
Wheat
Wheat is a cereal grain, originally from the Levant region of the Near East, but now cultivated worldwide. In 2007 world production of wheat was 607 million tons, making it the third most-produced cereal after maize and rice...
and soybean
Soybean
The soybean or soya bean is a species of legume native to East Asia, widely grown for its edible bean which has numerous uses...
. 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
Nickel
Nickel is a chemical element with the chemical symbol Ni and atomic number 28. It is a silvery-white lustrous metal with a slight golden tinge. Nickel belongs to the transition metals and is hard and ductile...
, silver
Silver
Silver is a metallic chemical element with the chemical symbol Ag and atomic number 47. A soft, white, lustrous transition metal, it has the highest electrical conductivity of any element and the highest thermal conductivity of any metal...
and steel
Steel
Steel is an alloy that consists mostly of iron and has a carbon content between 0.2% and 2.1% by weight, depending on the grade. Carbon is the most common alloying material for iron, but various other alloying elements are used, such as manganese, chromium, vanadium, and tungsten...
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
Swing trading
Swing trading is commonly defined as a speculative activity in financial markets whereby instruments such as stocks, indexes, bonds, currencies, or commodities are repeatedly bought or sold at or near the end of up or down price swings caused by price volatility...
.
As a major producer and consumer of commodities, China has large potential for developing its futures market. China's commodity futures markets have expanded product ranges and deepened liquidity pools to cater to the increasingly diverse needs of the nation's rapidly growing economy.
With increasing volatility in global commodity markets and prices, companies have been expanding their agricultural product, precious/base metal, fuel oil and other commodity-related investments in China.
Exchanges
There are three commodity exchanges in China after the merger of 50 exchanges into 14 in 1995 and subsequently into three in 1999.The China Financial Futures Exchange
China Financial Futures Exchange
The China Financial Futures Exchange , is a futures exchange established in Shanghai in September 08, 2006 -- with the approval of the State Council and the authorization of China Securities Regulatory Commission...
(CFFEXhttp://www.cffex.com.cn/), 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 working to the launch.
See also
- Commodity trading in IndiaCommodity trading in IndiaCommodity trading in India has a long history. In fact, commodity trading in India started much before it started in many other countries. However, years of foreign rule, droughts and periods of scarcity and Government policies caused the commodity trading in India to diminish. Commodity trading...
- China National Commodity Exchange Center
- Commodity Trading Market of China
- Commodities exchangeCommodities exchangeA commodities exchange is an exchange where various commodities and derivatives products are traded. Most commodity markets across the world trade in agricultural products and other raw materials and contracts based on them...
- Commodity market
Further reading
- China's Financial Markets: An Insider's Guide to How the Markets Work By Salih N. Neftci, Michelle Yuan Menager-Xu (Elsevier, 2006) ISBN 0120885808