DAVID BARBOZA writes for the New York Times,
SHANGHAI — China took a major step Friday toward making its capital market system more sophisticated and perhaps more stable as it agreed to give investors a new and powerful set of risk-management tools.
The government said it had approved, “in principle,” the creation of stock index futures, trading on margin and short selling, investment tools that are commonly used in New York, Chicago, London and many other financial markets, according to Xinhua, China’s state run news agency.
The announcement means that for the first time investors in China have more options than simply buying and selling their favorite stocks. They will soon be able to invest in a stock index (or set of stocks, collectively) and borrow money to trade stocks on margin.
Investors will also be able to make financial bets that stock prices will fall, a practice called short selling.
“This is a major step for China’s capital markets,” said Chang Chun, a professor of finance at the China Europe International Business School in Shanghai. “The government has been studying this for a long time.”
The China Securities Regulatory Commission said on its Web site Friday that it may take three months to complete preparations for the new investing tools to become available.
“This improves the stability and the healthy development of the capital markets,” the C.S.R.C. said in its statement.
By approving the new tools, the government hopes to accomplish several goals, including giving Shanghai more credibility as a financial capital and encouraging more ordinary Chinese to invest in equity markets. Many households still keep a large amount of their savings in low-interest accounts at state banks.
The announcement Friday did not come as a surprise to investors here.
Rumors that such an announcement was imminent have excited market players in recent days.
They drove up the share prices of Chinese brokerage houses, which expect to cash in on the new rules by making margin loans to investors and giving them additional options to hedge their risk.