Financial innovations in China need safeguarding
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Stock Index Futures went through a five year transition from concept to operation, similar to Broker Financing Bills, which also faced several difficulties. The two latest innovations in Chinese financial system, though already approved by the State Council, still appear to be pioneering in a jungle.
As a growing economy choosing a mode and speed to develop the domestic capital market is always an unavoidable issue for China. At the end of last year, data showing that China ranked last among the share market expansions of various countries, including the BRIC nations (Brazil, Russia, India and China), was extensively quoted by financial media. However, from another perspective, the statistics show there's still room of expansion for the Chinese developing capital market.
A possible reason for the Chinese stock market's lack of expansion, is the limited development time and cautious attitude towards financial innovation, the difficulties of Stock Index Futures and Broker Financing Bills' development both support this theory. Moreover, Stock Index Futures, as a derivative financial product, is a self-evidently double edged sword. But the bright side of this is despite the financial crisis since 2007, China has increased its efficiency in upgrading the financial system, attested by opening the Growth Enterprise Board (GEM), the debuting Stock Index Futures and Broker Financing Bills, which all happened within the last six months.
Every advancement in the Chinese stock market, including its birth, is essentially based on reform and innovation. The Chinese capital market still bears the characteristics of gradual and self-restrained reform. Additionally, Stock Index Futures and Broker Financing Bills, the two latest innovations in the Chinese financial market, are regarded as pathfinders for the market's further advancement. The approval posted on the website of China Securities Regulatory Commission (CSRC) makes it clear that Broker Financing Bills should make tryouts during the preliminary stage while Stock Index Futures have to wait another few months until their formal debut.
