Travels in China

Recently, I was part of a delegation to Shanghai and Shenzhen with the Options Industry Council (the educational arm of the Options Clearing Corporation). We were in China talking about the importance of educating investors in the use of listed, exchange traded options.  We were also there to help take the mystery out of derivatives and listed options.

Allow me to share some of my experiences in China? Why don’t you brew yourself a cup of Jasmine Fancy loose leaf Chinese green tea and settle in. I say “loose leaf” tea because in meetings both water and loose-leaf tea were served. Occasionally you would take a sip and end up with a few stray leaves but all in all, a very good cup of tea.

While I flew into and out of Hong Kong, all my time was spent in China so my observations are all on mainland China…and more specifically Shanghai and Shenzhen.

China has two main equity exchanges. Shanghai Stock Exchange which is the 5th largest in the world by market capitalization and is located in Shanghai, hence the name. The second exchange is the Shenzhen Stock Exchange which lists more up and coming companies. Currently, foreign investors are still excluded from owning A-shares of companies because of tight capital controls by the state.

China has three futures exchanges: Shanghai Futures Exchange, Dalian Commodity Exchange and Zhengzhou Commodity Exchange. Interesting factoid, on the Shanghai Futures Exchange they lead the world in trading futures on steel rebar, which are the long steel reinforcing rods sunk into concrete. Who knew?

These five exchanges joined together and created the China Financial Futures Exchange (CFFE) in Shanghai. On the CFFE, they trade Index Futures on the China Securities Index 300 (CSI 300.) This is the only financial future traded on this exchange though options on this future are “in the future”, to coin a phrase, as are other financial products.

When we were leaving our meeting at the CFFE, I noticed the screens up showing how the Index did that day.  I did a double take; while the graph showed the index was up on the day by over 1%, all the numbers were red.  Turning to our hosts, I asked, “How can all the numbers be red, yet the index is up?” He smiled and said, “In China, red is good!” Anybody who has been chewed out on the trading floor or trading desk in America for having a red ink pen will have a nice laugh about this.

The financial market regulator in China, the China Securities Regulatory Commission (“CSRC”), oversees both the securities industry and the futures industry. It is a like a combination of our own SEC and CFTC.

PhD’s are a dime a dozen in China. They really believe in education and experts. One of our hosts for the trip was the “Shanghai Municipal Bureau of Foreign Experts.” You can’t swing a stick without striking two or three Doctors of Philosophy. So do not swing any sticks over there!

Both Shanghai and Shenzhen are modern cities with long histories. While Shanghai has extensive historical buildings along the river waterfront known as the Bund, it has gone through a significant growth phase over the last twenty years. They do not just build one apartment building but will build six or eight or even ten very tall apartment buildings all together and all of the same style. This is replicated all over the city.

How was traffic? In the city centers, traffic is heavy. Traffic lights seemed to only apply to cars…bikes and mopeds did not seem required to obey these traffic lights. If you are walking and about to cross the street, good luck! My advice is to go with the flow but step lively and keep your eyes peeled.

What is the most popular American car brand in China? Buick. They are manufactured by Shanghai GM, a joint venture between GM and Shanghai Automotive Industry Corporation. Joint ventures are the preferred method China uses with foreign companies doing business in the country.

Not everything was good about the trip. In the spirit of those old cliffhanger serials, come back tomorrow for that story!