Banking, insurance and the stock market. Step by step China has opened up its financial industry to foreign capital. The pace quickened significantly in the past year in line with the country's World Trade Organization (WTO) commitments, and last month the authorities began to allow foreign investors to trade long-reserved A shares and bonds, through so-called qualified foreign institutional investors.

One question naturally ensues: When will the futures sector, relatively small but pivotal in curbing increasing price risks, follow suit?

As Sino-foreign joint ventures in banking, insurance, securities and fund management crammed newspaper headlines in the past year, it was quiet on the futures front until late October, when the futures department deputy chief of the China Securities Regulatory Commission (CSRC), Ye Chunhe, said his commission was in the initial stages of examining conditions for ushering in foreign futures companies with commodities backgrounds.

Ye's remarks inspired speculation that the futures sector may soon follow other financial sectors, but other officials said there were no hints of immediate action.

"There is no plan for the near term," a CSRC official said. "As far as I know, there is no timetable yet."

The official declined to give further comment, but most analysts say the opening up of the futures markets is inevitable.

"I think that (allowing foreign capital into the industry) should be two to three years away, given the renminbi's convertibility issue and the possible impact," said Xia Hai, general manager for trading operations with the China International Futures Co Ltd (CIFCO), China's dominant futures trader.

"You need to consider which types (of futures contracts) to open first, can foreign companies become members (of futures exchanges), or shall we allow total foreign ownership or just joint ventures?" he said.

The yuan's partial convertibility on the capital account still spells a hurdle in opening up futures trading, but a bigger concern is the possible impact on a fragile domestic industry.

China's some 180 futures brokerages suffered an industry-wide loss in the first three quarters of this year, dashing hopes kindled by a tiny profit last year. Over-speculation led to a slew of market-shaking scandals in the early 1990s, prompting a government-orchestrated consolidation over the past couple of years. The number of brokerages shrank to some 180 from a peak of nearly 1,000 while only three exchanges survived, down from more than 50.

"Personally, I think joint ventures are a better choice. The domestic side takes a controlling stake first, and then loosens it up over a period of a few years," Xia said.

Xia's expectations seem to largely dovetail with those of the industry as a whole. The China Futures Association (CFA) is working on a 10-year industry blueprint that pegs the opening up at around 2005.

CFA's Deputy Director Chang Qing said in an interview: "According to our development plan, (we should) focus on doing a good job of building the domestic market before 2005 ... and gradually open up after that, for example (allowing) joint ventures."

Rather than foreign capital, Chang said what the industry needs most at present is a more mature and much bigger domestic market, one that is influential in other Asian markets.

That's a tough task. Only seven types of commodity futures are now being traded on China's three futures exchanges, and the annual combined turnover is a paltry 3 trillion yuan (US$360 billion), as compared to the average daily volume of US$3 trillion at the Chicago Mercantile Exchange, notes CIFCO (Shenzhen)'s President Ma Wensheng. "The scale is just too small," he said.

That has constrained the arbitrage appetite of foreign futures companies, and the fact that many foreign-invested companies are already hedging Chinese contracts, through illegal channels, further reduces their interest in obtaining immediate market access, Chang said.

"They are not interested," Chang said. Up to 2005, he said, "it's a process of continuously launching new products."

Chang did not elaborate, but the CSRC has said it was preparing to launch more commodity futures contracts, such as cotton and oil. More significantly, the CSRC is studying the feasibility of re-introducing financial futures, including stock index and Treasury bonds.

And foreign companies are anything but indifferent to the Chinese market, given its large quantities of the world's major commodities. Copper at the Shanghai Futures Exchange and soybean at the Dalian Commodity Exchange in Northeast China's Liaoning Province, are exerting increasing influence on global prices.

Insiders say some foreign-invested yet China-incorporated companies, although not explicitly allowed, are already trading domestic futures contracts. Most are trading copper contracts in Shanghai, either to hedge China-related price risks or to profit from price differences between the domestic and overseas exchanges.

More, they say, are trading in overseas exchanges on behalf of domestic enterprises, both for hedging and arbitrage reasons. After a seven-year ban, seven State conglomerates were allowed late last year to hedge in overseas markets, but are strictly barred from speculative trading or brokering.

Then there are foreign futures brokerages that are busy gathering information and fostering local business ties with an eye on having a head start once the door opens. "The (current size of) commodity futures trading may be small, but there is more than that. We are primarily expecting (the launch of) financial futures, which should be the bulk (of trading), as is the case in foreign markets," said Frank Lee, business development manager with the recently opened Shanghai representative office of Refco Group Ltd, a major global futures trader.

That for sure has put growing pressure on domestic futures firms, which, still barred from proprietary trading and haunted by an unabated commissions war, are particularly eager currently to regain the right to broker for Chinese companies in overseas markets. Regulators, however, have only said they are considering allowing more big companies, beyond the seven, to hedge their own risks overseas.

Companies have also been lobbying regulators for more trading powers to make them "full-service" players that are capable of brokering, proprietary trading, asset management and consulting.

CIFCO (Shenzhen)'s Ma, however, said that it is no sure bet that local firms will be the underdogs once the market is open, citing the high professional standards and advanced trading techniques, as well as an efficient supervision framework built over the years.

"(Foreign companies) are not necessarily going to outdo local companies," said Ma, who just returned from a visit to the London Metal Exchange's annual meeting.