AS China plans a record treasury bill issue this year it may also be getting ready to take a big step backwards by banning bond futures trading, an industry consultant warned yesterday. Zhang Yichen, Hong Kong-based executive vice-president of Springfield Financial Advisory, said Beijing was concerned about speculation in the bond futures market. 'I'm afraid [China is] going to close down bond futures in just the way [it closed] the other markets,' said Mr Zhang, an adviser to Beijing financial authorities and the Shanghai Stock Exchange. 'It would cause chaos in the market,' Mr Zhang said. But he added: 'Anything is possible.' Hot money has been pouring out of stocks and into bond futures because the People's Bank of China has raised the subsidy on treasury bill coupons to insulate them from inflation. Speculation on bond futures now accounts for almost all trading on the Shanghai Stock Exchange and has drained capital away from equities. On Monday, turnover in futures contracts hit 72.59 billion yuan (about HK$66.56 billion) compared with total stock turnover of just 263 million yuan. Beijing has banned futures trading in currencies and in most key commodities, including petroleum and coal, in a bid to stem capital outflows and stamp out speculation that was fuelling inflation. It has closed dozens of futures trading floors around China and thrown out foreign-funded brokerages. Shanghai securities authorities have fined seven stock exchange members for manipulating futures prices. Speculators have focused on three year 1992 treasury bills that mature on July 1 this year. The original coupon was 9.5 per cent, but in 1993 the government introduced the coupon subsidy, which is now at 10.38 per cent. Chinese bonds pay principal and interest at maturity. With a 10 per cent coupon subsidy, investors who bought 1992 bonds worth 100 yuan would get 148.5 yuan at maturity compared with an anticipated return of 128.5 yuan. Each month Beijing announces a new subsidy rate and this fuels even more frantic trading. One problem is that the futures market is not backed by a liquid spot market. Mr Zhang said he was urging Beijing to boost bond issues to try to curb speculation, but added that Beijing retains 'traditional notions against borrowing'. Authorities have said a record 150 billion yuan of treasury bills would be issued this year, starting this month, compared with 102.8 billion yuan last year. This is less than 10 per cent of gross national product, a tiny amount considering China's huge borrowing requirements for infrastructure and a savings rate at 40 per cent of gross national product.