When it comes to the development of its equity markets, China has always crossed the river by feeling for the stones. The first broker got going in 1986 and the first exchanges four years later; it was not until July 1999, however, that Beijing produced a formal securities law to regulate issuance and trading.
So it is with the introduction of index futures, effective today after at least three years of delays and dummy runs. Just one product – a contract tracking the CSI 300, representing the bluest of blue-chips on Shanghai and Shenzhen – will be available, while tough qualification criteria should weed out undesirables (including most retail investors and, for the time being, foreigners). Meanwhile, pilot programmes have begun in margin trading and short-selling, again under strict controls. If all goes tolerably, and restrictions are gradually lifted, the measures should contribute to the deepening of the domestic equity markets, just as they did in retail-dominated Taiwan and India. In the short term, though, the most obvious beneficiaries are the intermediaries: the top three listed brokerages have outperformed China's top three banks by 5 per cent since the beginning of the year.
Further out, the best measure of success may be the price differential between A-shares in Shanghai and the equivalent H-shares in Hong Kong. Unshortable mainland shares have traded 30 per cent more expensively, on average, than shortable red-chips offshore during the past five years.