At the beginning of 2007 China Business News interviewed Mr. Yang Maijun, CEO, Shanghai Futures Exchange. Mr. Yang talked about his thoughts on Shanghai Futures Exchange’s development and objectives against China’s economic growth and the restructuring of futures industry. Here is the excerpts of the interview.

CBN：In the year just passed SHFE has recorded a trading value of RMB 12.61 trillion that accounted for 60.03% of the total of the three futures exchanges’ in Mainland China. It was also 92.81% higher year on year. How do you look at these figures?

YANG: It made me and the whole staff of SHFE very excited. We can see not only the amounting of trading size in the futures market but the elevating significance of this market to the economy.

The trading size gets larger, and the futures market functions more sufficiently. Now SHFE has become one of the three copper price-setting centers and the copper futures prices has been taken as a benchmark to the physical trade around the globe. In 2006，we saw huge volatility in the global copper prices, while our markets helped most domestic metal producers, smelters and consumers hedge off the risks. Shanghai Price and Shanghai Rules at SHFE aluminum, natural rubber and fuel oil markets were regarded more seriously in the world and the region.

A common phenomenon is, in a developed country, the median annual trading value in its centralized derivatives exchanges is 10 times larger than the amount of its annual GDP. The ratio in China, however, is aound 1:1. Under that methodology, we believe there is a lot of room for Chinese futures industry.

CBN: How do you look at the positioning of Chinese futures market and role and participation of SHFE out there?

YANG: To better serve economic development and assist in constructing and improving a market economy system is the ultimate purpose why the futures market should develop. SHFE was established also for that. Premier WEN Jiabao maintained that futures market be developed in a positive and prudent manner. That gives us a clear vision of the road ahead.

Now China’s economy continues its healthy development. The pace of market-oriented restructuring is accelerated. Huge amount of bulk commodities is imported and exported, which will last for quite a while. A "world processing center", China needs a regualted and finely functioning futures market, with its price discovery and risk hedging functions, to consolidate and improve its market system.

How China’s futures market is in an emerging and transition period. The market participants are weak at using the market in a prudent and efficient way, and conditions and environment for the sustained development should be improve on. Therefore, while we are pressing forward we should stay risk-conscious. It should be a prudent development.

CBN: Currently it has been agreed that China needs a commodity futures market. Regarding its status as a world processing center, China has a large demand for bulk commodities including oil, steel, iron ore. What is your opinion on that?

YANG: As a world processing center, China offers products but also is in need of the raw materials. Therefore, we need a market that can mirror demand-supply situation and can generate reasonable prices. A futures market can help us with that. We need a futures market and we need it to be interacting with the global markets. It will be good to the healthy and stable development of China’s economy.

CBN: SHFE’s new generation exchange system has been put on. We know it is a leading product among the peers.Could you tell us about some major points of the system?

YANG: On Nov.3 2006 we put on the system. It is completely a self-developed system by SHFE. The system can support trading, clearing, information dissemination of commodities, financial futures and options.It provides the technological platform for the product expansion and system innovation of the exchange in the future. We understand that technology has already become the core competence to the exchanges around the globe.

CBN: What initiatives will SHFE go in for in its product development?

YANG: The product strategy involves various factors. Timing, conditions, human effect should be considered. At the beginning of 2006, the exchange set down a product blueprint for the next 3-5 years, which focuses on metals, energy, chemicals, indices, options. In metals, steel futures, particularly steel wire and rebar futures, zinc and other precious metals, such as gold, are at the top of the list. In energy, LPG, asphaltum should come first, and crude oil and refined products are in the pipeline too. In chemicals, we look at glycol. In options, copper futures options is the direction. In commodities indices, we have been studying and evaluating some relevant products.

CBN: How SHFE can become an internationalized marketplace?

YANG: A vibrant futures market should be integrating into the global pricing structure. It is a set trend for the internationalization of a futures exchange.

Generally speaking, we should take a positive, prudent and gradual mentality in opening-up the market, in tune with the pace of China’s forex restructuring.

SHFE is exploring into the feasibility of its opening-up. We are weighing some alternatives right now. For example, is it possible to allow some foreign institutions to be the special exchange member? is it possible that some product can be put on trial for a scheme like qualified financial institutional investor or omnibus account?

Meanwhile, we should stay active in working with other international exchanges. We will also try to smooth up the registration of interantional brands at SHFE for physical delivery and make adjustments to the trading platform so it can be more friendly to the international investors.