BEIJING, China (HedgeWorld.com)–In 1986, at the twenty-seventh congress of the Communist Party of the Soviet Union, Mikhail Gorbachev announced what might have seemed a modest package of market-based reforms under the label perestroika. Those reforms, most historians would agree, played a role in the unraveling of the Soviet system and the introduction (still subject to a chaotic transition) of an open society behind the once “iron” curtain.

In 2003, the leaders of communist China likewise are seeking to introduce market-oriented reforms. Whether the outcome will be analogous to that of Gorbachev’s program, of course, remains to be seen. What is certain, though, is that one aspect of an ongoing pattern of reform in China is the reform of the market structure for futures.

It is in this context that Leo Melamed, chairman emeritus and senior policy adviser to the Chicago Mercantile Exchange, spoke to the 2003 Beijing Forum on China and East Asian Prospects of Financial Cooperation on Sept. 23. He said that the CME applauds the National People’s Congress for recognizing their country’s need for additional futures instruments.

Under the direction of the China Securities Regulatory Commission, as Mr. Melamed observed, there are now three important futures markets: the Shanghai Futures Exchange, the Zhengzhou Commodity Exchange and the Dalian Commodity Exchange. The new market structure has propelled the CME into executing a memorandum of understanding with the Shanghai Futures Exchange. The CME will provide expertise and education to the SHFE “toward the goal of making it a leader in China and East Asia and ultimately [will] provide a mechanism to distribute its products internationally,” he said.

Speaking more broadly, Mr. Melamed expressed confidence that the 21st century will be a time of greater interdependence of markets around the globe, instantaneous information flows, immediate recognition of financial opportunities and risks, and continuous access to markets of choice. China must embrace these trends.

He warned that there is work still to be done, though. China’s markets are still a long way from embracing all the tenets of the free market. They must do so, because “efficient markets lead to greater market liquidity. A liquid market reflects truer price values and gives investors confidence in the marketplace. … Ultimately, the standard of living is enhanced and social order is greatly benefited.”

CFaille@HedgeWorld.com