The State Council has given approval "in principle" to the China Securities Regulatory Commission (CSRC) to introduce stock-index futures. That approval could mean a futures contract based on the Shanghai-Shenzhen hybrid CSI 300 by March, we’re told: good news for investors and anyone interested in the healthy development of capital markets in China.
All the same, we’ll keep our enthusiasm muzzled. Regulators have been talking for so long about the imminent introduction of index futures that anything short of their actual introduction has become meaningless. Consider Kang Huangjun, then vice-director of the CSRC, who said in 2000 that index futures are "absolutely necessary," or statements in 2005 and 2006 that appeared to indicate that index futures would be introduced no later than 2007.
It’s not just index futures. In late 2008, after the collapse of Wall Street, the CSRC told investors that short selling and margin lending would be shortly approved. Just a few weeks later, however, the regulator backtracked, and put the introduction of these measures on hold. A year later, there has been little progress.
Resistance to change is the defining characteristic of securities sector regulation in China. That is understandable given Beijing’s obsession with maintaining stability; it has long feared that allowing investors to profit in a falling market could lead to damaging speculative sell-offs. However, excessive caution is no better than an overly cavalier attitude toward regulation.
A case in point is the Qualified Foreign Institutional Investor (QFII) program, introduced to much fanfare in 2003 as a way to modernize and integrate China’s capital markets with the rest of the world. Seven years on, such basic issues as what taxes foreign investors are meant to pay in China remain unaddressed.
The introduction of stock-index futures is a good thing "in principle." We hope, but do not necessarily expect, that the CSRC will be able to put them into practice.