Drawn to derivatives

Liquidity in China's nascent derivatives market remains thin, despite its huge potential. However, dealers are positive the market will soon take off. Rahul Jhaveri reports

Liberalisation of China's derivatives market has gained pace following the relaxation of the country's foreign exchange regime in 2005. As domestic banks and corporates gain more currency and interest rate exposure, regulators have started to loosen their grip on the use of derivatives for hedging these risks.

But liquidity in the swaps and forwards markets has remained extremely limited and transactions have been sporadic, say dealers. Only a few interest rate swaps have been traded between a