Remarks by Leo Melamed at the Annual BOAO Forum 2015
Hainan Province, China March 26, 2015
Mr. Chairman, distinguished guests, ladies and gentlemen. I am honored and delighted to once again speak at this impressive forum. My remarks today will be focused on the growth of futures markets in China and their immediate future.
At the Third Plenum of the 18th CPC, President Xi Jinping unveiled an impressive list of proposed economic reforms. The fundamental goal, in his words, was for China to become an innovative society and a “knowledge economy.” Indeed, that similar goal is echoed as one of the key objectives at this Boao Forum, namely: Revolutionary Innovations.” I will speak to that objective.
Allow me to begin with a bit of the history. As many of the delegates here are aware, it was precisely thirty years ago, in 1985, that President Li Xiannian became the first Chinese Head of State to visit the United States. After meeting with U.S. President Ronald Reagan in Washington D.C., he came directly to Chicago to visit with me at the Chicago Mercantile Exchange, the CME Group---today, the largest futures market in the world. With benefit of hindsight, I believe President Li’s visit to the CME---the capital of risk management and foremost champion of innovation---was to tell the world that China was preparing to turn toward a new economic order. Indeed, Mr. Li’s visit to Chicago can be viewed as a prelude to the new economic blueprint subsequently fostered by Deng Xiaoping--- A blueprint which has brought China overwhelming economic success.
My meeting with Li Xiannian, created for me a life’s ambition: Not only would I promote the development of futures markets in China, but would do so throughout the world. I knew that this mission would be of long duration. However, in the long run I knew it would serve the best interests of the CME as well as the real economy of every nation. Over the years, I have advised financial markets in Brazil, France, Germany, Great Britain, India, Israel, Japan, Kuala Lumpur, Mexico, Russia, Singapore, South Korea, Taiwan, and even Ukraine. I knew that the greatest benefit from futures and derivatives markets will flow to economies of these nations. Like Deng Xiaoping’s white cats and black cats, futures markets will direct “market cats” to allocate capital efficiently. They will create an apparatus for price discovery. They will act as a gigantic insurance mechanism to allow inherent market business risks---in agriculture, foreign exchange, interest rates, and equities---to be hedged or adjusted quickly, efficiently, and at lower cost. If you will, they will represent a revolutionary innovation.
In the ensuing years, we maintained a strong connection with Chinese leadership and Chinese futures markets. During the 1990s, we advocated doing away with the multitude of would-be futures markets that were little more than gambling dens rather than servants of price discovery for the economy. What resulted were the regulated futures markets at the Shanghai Futures Exchange, the Zhengzhou Commodity Exchange, and the Dalian Commodity Exchange. The CME maintained strong Memoranda of Understanding with them and all Chinese exchanges, including the Shanghai Gold Exchange, the Chinese Financial Futures Exchange, and the Shanghai Clearing House. These MOUs were initiated to create a forum for education and information-sharing between the exchanges. We provided workshops and symposia. We instituted a continuous visitation program between CME and Chinese exchange officials and employees. We have no doubt that our advice and expertise was extremely valuable. Today, these Chinese exchanges are strong, well run, and capable futures markets.