Along with the finance industry’s prosperity and the futures’ revival, as well as the coming issuance of stock index futures, investing in futures sector in China becomes a hot topic among foreign investors.

The futures has not been set in the timetable for opening-up under China’s WTO entry agreement and the Industrial Guiding Catalog for Foreign Investment explicitly indicates that the foreign investors are forbidden from investing in a futures company in China.  However, the Regulations on Review and Approval for the Qualification of Shareholders of Hong Kong and Macau Service Providers to Invest into Futures Brokerage Company, promulgated by the China Securities Regulatory Commission(“CSRC”) on August 27, 2004, lifted the restriction.  According to the foresaid regulation, Hong Kong and Macau brokerage companies satisfying certain requirements set by the CSRC are permitted to hold no more than 49% of equity interests in a mainland futures company since January 1, 2005.  The minimum registered capital for a joint venture futures brokerage company is RMB 30 million.  In this way, the foreign investors can make a detour to access to mainland futures market via Hong Kong branch, as in the trial case of Galaxy Futures jointly established by China Galaxy Securities Company and the Hong Kong branch of ABN AMRO Bank, the Hong Kong branch of ABN AMRO Bank holds 40% of equity interests in Galaxy Futures.

The Measures for the Administration of Futures Company andthe Administrative Regulation on Futures Transactions, promulgated by the CSRC recently and taking effect from April 15, 2007, are expected to further open the futures sector to more foreign investors.  In accordance with Article 87 of the Administrative Regulation on Futures Transactions, the State Council authorizes the futures regulators, such as the CSRC, the Ministry of Commerce and the State Administration of Foreign Exchange to stipulate administrative measures governing the establishment, merger or investment in futures companies in China and such administrative measures shall be implemented upon approval of the State Council.  It was reported that the existing Industrial Guiding Catalog for Foreign Investment, currently being revised by the Ministry of Commerce, is very likely to be revised to open the futures market on certain conditions in certain areas.

However, the limitations on the equity interest permitted to be held by the foreign investors and the business scope of the joint venture futures companies remain uncertain till the administrative measures are released.