Economic reforms lure foreign futures brokers to north

Carrie Lee

THE increasing need of Chinese corporations to turn to overseas futures markets to hedge against financial risks under the state's market economy policy is attracting foreign futures brokers to China.

Among the latest entries is Quantum Financial Services, a wholly owned subsidiary of US-based ING Capital Corp.

The company, making China its first port of call in the region after Taiwan, is to transfer orders from mainland futures investors to US futures markets.

William Grossman, Quantum managing director and chief representative for Asia, said China had good potential as a big market for US futures, with mainland corporations now beginning to resort to the international debt market.

''Now they have exposure to international interest rates. Therefore they will have interest rate risks,'' he said.

Their reliance on the international debt market would also increase as the mainland's growing economy would mean that Chinese enterprises were needing increasingly more capital.

Also, Chinese enterprises were losing protection from the Government under the market economy policy.

That created a need to hedge against financial risks, with the futures market being a resort.

Mr Grossman said the US futures markets could complement China's by offering a different range of products.

''The products traded within China and international markets are very different,'' he said.

But he also expected difficulties in the market.

''The state of convertibility of the yuan is a question. The yuan is not fully convertible. Therefore the operation will difficult,'' he said.

Other obstacles would be the remnants of price control and subsidies, with import and export companies, for instance, protected to a certain extent from risks.

The lack of legal provisions on the futures business would also pose a problem.

But those difficulties would be cleared with China making further steps towards economic reform, Mr Grossman said.