Making good use of futures resources to enhance the endogenous driving force of Henan's economy
The primary function of finance is to serve the real economy. A stable financial system leads to a stable economy. The Henan Provincial Financial Work Conference held in early February 2024 emphasized the importance of concentrating financial resources to support the development of a modernized Henan through investment, blood transfusion, and revitalization.
Speaking of Henan's financial resources, especially its advantageous ones, futures are unparalleled. Henan is the birthplace of the futures market in New China. On October 12, 1990, China's first futures-based market, the Zhengzhou Grain Wholesale Market (predecessor of the Zhengzhou Commodity Exchange), officially opened. Less than three years later, the Zhengzhou Commodity Exchange (ZCE) officially launched standardized futures contracts, marking the beginning of the rapid development of the futures market in New China.
With its proximity to the Zhengzhou Commodity Exchange, Henan's real economy has early access to and utilization of futures tools. The various futures resources gathered around the ZCE have added a unique dimension to Henan's economy.
Futures have yielded positive results in serving Henan's economy.
The "order + futures" Yanjin model, which became nationally renowned at the beginning of this century, is a prime example of futures empowering Henan's real economy.
As early as 2003, Yanjin County, Henan, explored and established an operating model of "company + association + farmers", encompassing unified seed supply, mechanized planting, unified management, mechanized harvesting, and unified acquisition. After the Zhengzhou Commodity Exchange launched high-quality strong gluten wheat futures in 2003, Jinli Maiye Group, a grain distribution company in Yanjin County, continuously developed and improved the "company + farmer" and "order + futures" production and operation model. Through the wheat association, they signed high-quality wheat orders with 100,000 households and 410,000 farmers in the county, engaging in hedging on the wheat futures market. This model enabled farmers to indirectly participate in the futures market to mitigate risks, improved order fulfillment rates for enterprises, and boosted farmers' income through increased enterprise efficiency.
A single futures product affects and serves an industry or even an entire industrial chain. Its price discovery and hedging functions play a positive role in optimizing industrial structure, improving the risk resistance of industries, and assisting in industrial transformation and upgrading.
Henan is not only an important agricultural province and grain-producing province in China but also a major province in mineral resources and an important energy base. Over the past 30 years, domestic futures exchanges, including the ZCE, have listed futures and options products closely related to Henan's real economy, such as wheat, aluminum, cotton, corn, silver, soda ash, eggs, pigs, and peanuts, providing Henan's real economy enterprises with a variety of risk management tools and promoting the healthy and stable development of related industries.
Futures delivery warehouses, which connect the futures market and the spot market, integrate warehousing, logistics, and trading functions. They not only attract upstream and downstream enterprises in the industrial chain to gather and participate in the futures market but also strongly drive the development of the surrounding economy and industries. Deeply developing and utilizing delivery resources, participating in delivery operations, and expanding delivery services are also important means for Henan enterprises to expand their operating scale and improve the quality of their development.
As of June 2024, the Zhengzhou Commodity Exchange, Shanghai Futures Exchange, and Dalian Commodity Exchange have established 54 futures delivery warehouses (including storage points, etc.) in Henan, involving 20 futures products. Among them, the Zhengzhou Commodity Exchange has established 23 delivery warehouses (factories) in Henan (excluding 7 ship and barge service agencies).
Based on these advantages, in recent years, Henan has seen the emergence of companies such as Henan Wan Zhuang Anyang Logistics Park Co., Ltd. and Henan Fengsheng Agriculture Co., Ltd. A number of typical enterprises have grown by leveraging the futures market to improve their operations and achieve stable development, including large commodity supply chain enterprises such as Ruimotong Supply Chain Management Co., Ltd. and Henan Tongzhou Cotton Industry Co., Ltd.. They use the futures market to effectively manage risks and steadily expand their operating scale." Li Zhengqiang, a researcher at the School of International Economics and Trade, University of International Business and Economics, told Futures Daily reporter.
Henan Wan Zhuang Anyang Logistics Park is the largest commercial reserve warehouse for chemical fertilizers and urea futures delivery warehouse in Henan Province. It is also a delivery warehouse for ferrosilicon, manganese silicon, and soda ash futures. It brings together more than 300 central enterprises, listed companies, and industry leaders, covering logistics, foreign trade, ports, and finance. More than 30 companies have set up subsidiaries, branches, or offices in the park, and most of them have carried out hedging operations. Warehousing, delivery, and logistics form a positive interaction, strongly supporting the development of the local economy.
In addition, with the support and promotion of relevant departments in Henan, Henan's real economy enterprises and related operators have actively participated in the "insurance + futures" pilot program, "worry-free commercial storage" pilot program, industry bases, industrial and financial cultivation bases, and industrial and financial service bases launched by domestic futures exchanges. By fully utilizing futures tools and resources, they have achieved stable supply and price stability, stable income increase, and improved quality and efficiency.
Taking "insurance + futures" as an example, in 2020, the Henan Provincial Department of Finance and the Zhengzhou Commodity Exchange jointly launched a pilot program for "insurance + futures" for apples in Sanmenxia. This was a new successful attempt by the provincial finance department to cooperate with the exchange. In that year, 2,053 apple growers received RMB 227 million in risk protection, with a 64-fold amplification effect of the fiscal subsidy. In 2021, while continuing the pilot program for "insurance + futures" for apples in Sanmenxia, the Henan Provincial Department of Finance and the Zhengzhou Commodity Exchange jointly launched a pilot program for "insurance + futures" for peanuts. Over the past three years, the pilot counties (districts) and the covered planting area have increased year by year. In 2023, the Henan peanut "insurance + futures" pilot program covered 10 counties (districts) and an area of 570,000 mu, making it the largest and most extensive provincial-level peanut "insurance + futures" project in China. In these pilot projects, apple and peanut growers in Henan only need to pay a small part of the premiums, with the rest supported by local finance and the futures market, achieving "large protection" with "small investment". In addition, government departments at all levels in Henan have actively supported and promoted the implementation of 74 "insurance + futures" projects related to corn, soybeans, eggs, pigs, etc., with a total of 1.27 million tons of spot goods secured and 118,000 farmers helped to avoid risks from price fluctuations and natural disasters.
In exploring the stable supply and pricing of chemical fertilizers and serving agricultural production throughout the province, the Henan Provincial Development and Reform Commission, the Provincial Supply and Marketing Cooperative, and the Zhengzhou Commodity Exchange have coordinated efforts, inviting the Zhengzhou Commodity Exchange to participate in the research and support of Henan's chemical fertilizer reserve work. Henan's chemical fertilizer storage enterprises (such as Wan Zhuang Chemical Fertilizer Trading Market Co., Ltd.) actively participate in the Zhengzhou Commodity Exchange's "worry-free commercial storage" pilot program, effectively ensuring an adequate and stable supply of urea in Henan's market.
It is understood that since the launch of the "worry-free commercial storage" pilot program, Henan has been a key area supported by the project and has the highest support ratio. In the past four years, 19 companies have participated in storage in Henan Province, accounting for 35.8%, and a total of 950,000 tons of urea have been stably reserved for Henan Province.
To date, nearly 10 enterprises in Henan have become partners of domestic futures exchanges in industrial bases, industrial and financial cultivation bases, and industrial and financial service bases, promoting their own business development while also encouraging surrounding enterprises and upstream and downstream customers to understand and utilize futures.
Unlocking Potential and Empowering Higher-Quality Development
Henan still has room for improvement in utilizing futures exchange resources to better serve regional economic development and create a richer, more substantial, and efficient futures ecosystem." Li Zhengqiang pointed out that compared with other mature regions in China, the degree and level of participation and utilization of the futures market by enterprises and related operators in Henan Province are still not high enough.
Taking peanut futures as an example, Liu Si Kui, head of agricultural products at Zhongyuan Futures, told reporters that Henan is the largest peanut producing province in China, with mainly smallholder farmers, scattered sources, small-scale intermediaries, and weak downstream processing capabilities. Currently, there are 4 peanut futures delivery warehouses and 4 ship (vehicle) board service institutions in Henan. Most of the delivery warehouses play a warehousing and logistics service role, and their role in attracting and driving relevant entities to participate in the futures market is limited. In contrast, Shandong, another major peanut producing province, has relatively abundant delivery warehouse resources, mainly from deep-processing enterprises and large traders. According to statistics, Shandong has 11 peanut futures delivery warehouses and 12 ship (vehicle) board service institutions, far exceeding the number of delivery warehouses in Henan, and its ability to radiate the industrial chain is also relatively strong.
“For enterprises to use futures tools to manage risks, they need high-quality, professional futures personnel. However, in Henan, the cultivation of professional futures personnel, in terms of both quantity and quality, is difficult to match the actual needs of enterprises,” said Li Wei, vice president of the Futures Industry College of Zhengzhou University of Economics and Trade. Currently, only three universities in Henan Province offer futures-related programs, and these are set within the talent cultivation plans of finance, investment, and other majors. There is no separate futures major. The shortage of reserve talent and the lack of high-quality professional talent are also unfavorable for Henan's real economy to participate more deeply in the futures market.
How can we make good use of futures resources, leverage the role of futures, help Henan rebuild its industrial advantages, and accelerate the construction of a strong manufacturing province?
Some industry insiders suggest that, firstly, under the guidance of the futures contract listing registration system, we should encourage domestic futures exchanges to list more futures products with Henan characteristics or related to Henan, such as chicken, dried chili peppers, diamonds and other bulk commodities futures, as well as weather indexes and other new derivatives, to provide Henan's real economy with a wider variety of risk management products. It is suggested that relevant departments in Henan Province actively strengthen communication with all parties, coordinate provincial institutions to actively undertake or participate in the feasibility studies of new futures products, and promote the listing of new products.
Secondly, combining Henan's resource advantages and industrial advantages, we should encourage domestic futures exchanges to establish more futures delivery warehouses in Henan to further facilitate the participation of Henan's real economy in the futures market. Encourage and support qualified production, trade, and warehousing enterprises to apply for futures delivery warehouses, and rely on the delivery warehouse fulcrum and network to expand and strengthen warehousing, trade, and logistics economy.
Finally, make full use of various futures resources, including exchanges, to increase futures training for Henan's real enterprises and institutions, and encourage them to use futures and other derivative tools and products to manage risks and stabilize operations.
“It is necessary to give full play to the leading role of futures exchanges, actively carry out futures knowledge training, and create a rich, substantial, and efficient futures ecosystem. For functional departments, provincial, municipal, and county-level financial management departments that are highly related to rural revitalization, processing and manufacturing, trade and logistics, and industrial and commercial finance and taxation, we should strengthen futures knowledge learning and training, popularize the concept of using futures and derivative tools to manage price risks, serve rural revitalization, and support the stable development of the real economy among leaders at all levels across the province, so as to better support the enterprises, industries, and agricultural operators under their jurisdiction in using the futures market to manage risks. At the same time, relevant departments in Henan Province and cities should strengthen cooperation with domestic futures exchanges, target state-owned enterprises, listed companies, and small and medium-sized enterprises in the province and cities, and organize diversified and refined futures business training to guide enterprises to actively and effectively utilize the futures market,” said Li Zhengqiang.
Zhengzhou Commodity Exchange (ZCE), located in Henan, is the main supporting force for futures to serve the real economy in Henan. Relevant officials of ZCE said that ZCE will adhere to the purpose of serving the real economy and national strategies in the futures market, focus on the functions of the futures market, focus on the actual needs of Henan, actively strengthen communication and cooperation with governments at all levels in Henan, continuously improve its comprehensive service capabilities, explore paths and mechanisms for the futures market to support high-quality development in Henan, and contribute more futures strength to the high-quality development of Henan's economy.
In addition, it is necessary to strengthen the cultivation of reserve talent and professional talent in futures. “First, we should encourage universities in Henan to introduce futures and derivatives majors in a timely manner, and through systematic professional education, cultivate more reserve talents who have a deep understanding of the operating rules of the futures market and master various risk management tools and technologies. Second, we should build an exchange platform for the cultivation of professional futures talent, gather the wisdom of all parties, establish and improve the education and training system for the futures and derivatives industry, and provide the industry and the economy with more high-quality professional talent,” said Li Wei.
Leaders from Xiamen C&D Group visited Tongzhou for investigation and guidance
On March 3, Wang Yongqing, Vice President of Xiamen CNOOC Group, visited Tongzhou Group for investigation and guidance. Wei Gangmin, Chairman of our company; Huang Hongyu, President; Li Tao, Vice President; and Zhang Zhiyan, Director of the General Office, met with and participated in a symposium.
Tongzhou Cotton Market Brief, Week 1 of March 2025
1) This week's National People's Congress and the Chinese People's Political Consultative Conference (NPC & CPPCC) in China boosted market expectations for steady growth. In February, the Purchasing Managers' Index (PMI) for manufacturing stood at 50.2%, up 1.1 percentage points from the previous month, indicating a significant improvement in the manufacturing sector.
In 2024, China's dyeing industry saw rapid export growth to ASEAN and RCEP member countries, exceeding the overall export growth rate. However, this growth was accompanied by a decline in prices. From January to December, China's exports of eight major dyeing products to ASEAN totaled 7.908 billion meters, a year-on-year increase of 12.14%, 4.61 percentage points higher than the overall export growth rate, accounting for 23.58% of total exports. The average export price was US\$1.19 per meter, a year-on-year decrease of 2.75%, 0.64 percentage points lower than the overall decline. Exports to RCEP member countries totaled 8.431 billion meters, a year-on-year increase of 11.35%, 3.82 percentage points higher than the overall export growth rate. The average export price was US\$1.17 per meter, a year-on-year decrease of 2.79%, 0.60 percentage points lower than the overall decline.
On February 28, Mr. Huang Hongyu, President of our company, was invited to attend the 2025 Zhangjiagang Cotton Industry Development Conference and, as a guest speaker at the "Xiangshan Roundtable," shared his views on the cotton market and trading opportunities.
Henan Tongzhou Cotton Industry Co., Ltd.
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