China's Financial Derivatives Market System And Its Efficiency Analysis

This paper is meant to deal with the necessities to foster china's financial derivative markets in the background of global economic integrity, freedom and internationalization and presents a detailed analysis of the developing course of china's financial derivative market system and its efficiency. In the end , the author ,based on China's Current Economic Condition,proposes an overall strategy for china's financial derivative market.First, the paper briefly deals with the essential of financial derivatives market: a system serves economic development .As economic marketability reform deepens and the economic globalization strengthens,there has been a tendency that China should develop financial derivative market. "Financial depth",the economic uncertainty after entry into WTO, the variety of financing approaches and newly appearing economic principals, all these factors help to further the development of financial derivative market.Then, the paper proposes the factors that contribute to the beginning of financial derivative market: one is the market economic reform, the other is the financial derivative market system shifting. Last decades saw the shifting phases: theoretical research,market establishing and blindly developing, Clearing-up and regulating ,recovering . This shifting, determined by return acceleration principle, bears two opposite orbits: one is path dependence ,the other is lock-in. It is also true of China's financial derivative market as financial derivative market is also an economic system form. The developing route of China's financial derivative market tells us that it is featured by path dependence at the beginning, and then stops this course and slides into the low-efficient or negative state.As the discussion moves on, a detailed theoretical and experimental analysis on efficiency of China's financial derivative market system is delivered. Efficiency is determined by the ratio of profit and cost. The analysis on cost-benefit future market, a trial financial derivative market, proves that China's financial derivative market operates in a less efficient way. A model D=f(Er, In, Ie) is also produced to improve the efficiency. whether a chosen system can achieve adaptive efficiency or not depends mainly on how system environment(Er) combines with system arrangement(In). Meanwhile ,the market system design must take into account the market laws ,environmental adaptability and the system workability. System enforcement(Ie) serves as a guarantee of financial derivative market innovation. China's financial derivative market can be improved as long as a balanced relationship is established between these three factors. China ,as a new market-oriented country and a later beginner, has its advantages to develop its financial derivative market. As long as an appropriate strategy is chosenand the advantages are employed, the cost will be much reduced and efficiency will be much bettered off. The shifting strategy should include: Two principles is to be abided by such as :idea of comparative advantage ,idea of leaping over development .The path choice includes the following aspects: a. laws and regulation framework is to be established as soon as possible to reduce the negative effects to a minimum ;b. try counter trade mainly ;c. take advantage of over-counter trade appreciably ;d. Try forward agreement and future trade then option ,interchange etc.; e. internationalization.In the end , The course of financial derivative market should keep pace with the entire economic market process . Both the idea of "It -is -too-early -to-try-now "and the idea of "we-should- wait-now "should be avoided . And a systematic and efficient financial derivative market can only be achieved by internationalization .