Regulator says Covid has accelerated China’s reform agenda

CSRC vice-chair wants US firms to help develop onshore futures for risk management

Fang Xinghai, CSRC: China's futures market played a ‘critical role’ in V-shaped economic recovery

Photo: Imaginechina/SIPA USA/PA Images

The Covid-19 pandemic has not delayed the development of China’s financial markets, according to Fang Xinghai, vice-chairman of the country’s Securities Regulatory Commission. Indeed, it may even have accelerated developments by increasing market participants’ appetite to hedge risk and volatility.

“The pandemic in China hasn’t had a major impact on the direction of the capital markets. If anything, it has accelerated the pace of development, as well as reform and opening up in the Chinese capital markets,” Fang said, during a virtual conference organised by the Futures Industry Association.

In particular, Fang referred to a significant increase in onshore futures trading this year in China, which he says has helped support the recovery in the country. This could also provide greater incentive for the authorities to open up the markets further.

“We are very pleased to see that the futures market in China has played the role that it is supposed to play – that is, to smooth out the economic fluctuations and to make risk management easier,” Fang said. “If you talk about the V-shaped recovery in our economy, I think the financial markets and more specifically the futures market in China played a critical role, and we are quite pleased to see that.”

However, Fang described the futures market as still fairly under-developed. He hopes international investors can help support it by providing both capital and expertise.

“The Chinese futures market is quite big, but we are still at the initial stage of development,” he said. “The quality of the market still has to be enhanced significantly to serve our real economy much better.”

Despite the strained relationship that Washington and Beijing have had this year, Fang stressed that China is counting on US investors to help it develop Chinese futures markets. In June, JP Morgan was allowed to set up the country’s first fully foreign-owned futures business.

“The US futures market is a market that China has looked to for experience and learning – we continue to view the US futures market as something we can learn from [even if] we may not adopt every practice in the US market,” said Fang. “We welcome more US futures firms to come and set up shop inside China and then grow their business and help develop our futures market.”

This year has seen plenty of other landmark moments in the opening up of China’s financial system, further helping to deepen the markets. The country granted the first wholly foreign-owned licences for asset managers, launched the first onshore interest rate options, permitted banks to participate in bond futures for the first time since 1995 and most recently eased restrictions on the use of the Qualified Foreign Institutional Investors (QFII) scheme – from which regulators have now removed the word ‘institutional’, renaming it QFI.

Fang stressed the importance of QFI as a market access scheme that the government is keen to promote. He said the advantage of QFI over other access schemes, such as Bond Connect and Stock Connect, is that it is a lot easier to supervise foreign firms in the country – which may be one of the reasons for the introduction of new QFI rules in November.

“The [QFI] channel enables funds to be physically located inside China and makes it a whole lot easier and more thorough to regulate the [QFIs], to make sure that their investment conduct in China is appropriate,” said Fang. “It’s not putting unnecessary burdens on investors – we need to know what the international investors are doing in China.”

Editing by Philip Alexander

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• Topics
• Asia
• Bond futures
• China
• China Securities Regulatory Commission (CSRC)
• Futures
• Futures Industry Association (FIA)
• Hedging
• JP Morgan
• Qualified foreign institutional investor (QFII)
• Regulation
• Covid