Have a Donkey to Trade? China Has an Exchange for That

From livestock to flowers, exchanges are popping up everywhere in China. So is speculation.
Photo illustration: Kurt Woerpel; Photographer: Getty Images

Chances are, if you can buy it or sell it, China has an exchange for it. The latest example? The China Donkey Exchange. It’s one of more than 1,000 trading venues that now dot Asia’s largest economy, up from 300 in 2011, according to SunSirs, a provider of data and research on Chinese commodity markets.

The country has everything from the national stock exchanges in Shanghai and Shenzhen to small operations that consist of little more than software for matching buyers and sellers. But regional trading venues are becoming ever-bigger players. Helping determine prices for agricultural products, metals, and chemicals, they now cover 32 of China’s 34 provincial-level regions. An orchid exchange began operating in Yunnan province in September, and a market for small-company shares opened in Ningbo in May.

Properly run exchanges “are beneficial to the development of China’s markets,” says Hao Hong, chief strategist at Bocom International Holdings Co. in Hong Kong. But the rapid increase and sheer number of trading platforms have also raised concerns about patchy oversight. “Many of the exchanges started as a place of hedging but evolved into a place of speculation, which in excess brings no obvious benefits to the real economy,” Hong adds.

The donkey exchange was born for much the same reason hog and soybean futures are traded around the world. Donkeys in China are not just beasts of burden, but an agricultural commodity. A traditional treatment for anemia known as e’jiao is made from boiled donkey skin. Demand for e’jiao, which can be purchased as a cooked gelatin, has surged in the past decade as millions have joined China’s middle class.

Donkey prices have quadrupled over the same period—to about 8,000 yuan ($1,160) a head—in part because breeders have failed to replenish their herds. Donkeys are hard to breed quickly; the animals have long pregnancies, lasting up to 14 months.

The demand from China is being felt internationally. Niger, the BBC has reported, has banned the export of donkeys to preserve the animal there; Burkina Faso has banned the export of their skins. In some places where donkeys are used in farming and other work, the trade “has inflated prices for donkeys so much that families that depend on them can’t replace their donkeys,” says Mike Baker, chief executive officer of the Donkey Sanctuary, a U.K. charity.

In China, e’jiao companies have trouble finding enough skins to keep their factories busy. Dong-E-E-Jiao Co., a state-owned producer, launched the exchange in December to “promote the industry of donkey breeding and raise nationwide production,” says Liu Guangyuan, who oversees the project.

The marketplace, based in a rural part of Shandong province, handles transactions over the telephone. A farmer can call to say he wants to sell a group of donkeys, and the exchange will send a so-called runner—it employs more than 100—to confirm the animals exist and meet quality standards. It will help find a price both seller and buyer agree on and arrange shipping after a deal is struck.

More than 370 million yuan’s worth of donkeys have changed hands on the exchange since it opened. Dong-E-E-Jiao says that figure will probably reach 1.5 billion yuan by yearend, and it plans to start web- and app-based trading in April. Liu says Dong-E-E-Jiao doesn’t trade on the market for its own account, because it doesn’t buy live donkeys. Instead, it buys skins after the animals have been slaughtered.

The proliferation of Chinese exchanges has fueled concerns in Beijing that local authorities aren’t equipped to supervise them properly. In January a group of national ministries responsible for monitoring regional markets said in a statement that some platforms had been engaged in illegal activity, adding that venues for stamps, coins, and collectible cards had faced market manipulation allegations. It didn’t disclose names.

One recent episode illustrates the risks. In 2015 police alleged that the owner of China Gold & Silver Trade Center, a commodities exchange in the northern autonomous region of Inner Mongolia, had fled with users’ funds. China Gold & Silver’s website is now inaccessible; calls to its phone number, listed in filings with the State Administration for Industry and Commerce, didn’t go through; and it didn’t respond to an email seeking comment. An official at the local police department in Chifeng, which posted the allegations on its official Weibo account, said by phone that the case had been transferred to Beijing, without providing further details.

Problematic exchanges “siphon funds from proper markets to participate in speculation, undermine order in financial markets, and should be cleared promptly,” says Wang Deyi, a lawyer at Beijing Xunzhen Law Firm who’s represented investors in cases against regional exchanges.

Still, there are plenty of success stories among the new markets. One of the most notable is the China Stainless Steel Exchange, which opened in 2006 and now has all the hallmarks of a major futures market: centralized trading, standardized contracts, warehousing, and third-party custodians. The exchange, which operates almost continuously on weekdays, rivals the nationally regulated Shanghai Futures Exchange as a provider of benchmark pricing for nickel.

While China stands out for the sheer number of its exchanges, many of the venues were “spawned from needs in the real economy,” says Man Rongrong, a senior analyst at SunSirs in Shandong. The challenge is to keep them grounded there.

The bottom line: The China Donkey Exchange is one of more than 700 market platforms that have sprouted in the country since 2011.

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