Emerging Impact of Chinese Commodity Futures Market on Domestic and Global Economy

Zhiyong Tu, Min Song and Liang Zhang

China & World Economy, 2013, vol. 21, issue 6, 79-99

Abstract: In this paper we construct a set of indices that capture the special features of the Chinese commodity futures market for the period from January 2000 to December 2011 to analyze the general properties of China's commodity futures market. Using these indices we investigate the risk premiums of Chinese commodity futures and verify that the commodity futures can act as an effective diversification tool for Chinese asset management. It is found that the commodity futures can hedge both expected and unexpected inflation in China, and agricultural commodity futures are found to signal inflation 2 months beforehand. Finally, we explore the relationship between Chinese and US commodity futures markets in the years 2000 and 2010, and find that their interactions strengthen over time. Our research reveals an increasingly important role of the Chinese commodity futures market in both the domestic and the global economy. Some policy changes are suggested in response to this trend.

Date: 2013
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