The State Council has given approval to the Dalian Commodity Exchange to launch corn futures, a source told China Daily on Friday.

But it is only an initial approval, the source said.

The process has been passed on to the China Securities Regulatory Commission (CSRC), the watchdog for the securities and futures businesses, which is still to review details of the exchange's proposal and give final approval for the launch of the new contract.

Then the corn futures would be the third new futures product approved by the Chinese authorities this year, following fuel oil futures on the Shanghai Futures Exchange and cotton futures on the Zhengzhou Commodity Exchange.

Analysts said the futures industry has made a major breakthrough in the pace of product innovation this year.

Before that, the industry had hardly seen any new products since late 1990s, when regulators conducted an industry rectification to rebuild market order. This involved the closure of many futures exchanges and trading products and left only about a dozen futures products traded on the present three existing exchanges.

An official with Dalian Commodity Exchange said that it is awaiting notice from CSRC to start final preparations for the corn futures trade. But the timing of the launch still depends on many factors.

Zhengzhou started the trade of cotton futures in June, shortly after it received the authorities' final approval.

But the Shanghai exchange has been preparing for the trade of fuel oil futures for about four months since it got the license. It hopes to make the launch next month, exchange sources said.

Each of the three futures exchanges should be able to launch one new product this year.

China's futures market has been recovering quickly since last year and is expected to grow more quickly.

The three futures exchanges put together a record turnover of 10.84 trillion yuan (US$1.31 trillion) in 2003, official statistics said.

The first half-year turnover for this year shot up to 8.47 trillion yuan (US$1.02 trillion), a 115.7 per cent increase on a year-on-year basis.

However, compared to developed markets, market scale and product diversity in China are still rather limited, said Yang Maijun, director of the futures regulatory department of CSRC, at a forum recently.

But that will make Chinese companies rather passive when responding to changes to price fluctuation in international commodity markets.

Therefore, Chinese regulators will gradually promote new futures products. Apart from the commodity futures, securities-related products and financial derivatives will also be developed, Yang said.

He also said authorities are studying the way to let foreign institutions take part in the domestic market.

(China Daily July 31, 2004)