What Is the China Donkey Exchange?

China's trading venues have skyrocketed in number from 300 in 2011 to over 1,000 in 2017, and one of the newest exchanges to open is the China Donkey Exchange.

Editor's Note: For investors looking to play trends in China, this could be the newest form of speculative investment. We have a better way to play the Asian market and will share that in just a bit.

While that might sound odd, donkeys are considered an agricultural commodity in China, according to Bloomberg. The Chinese use donkey skin to treat anemia, and the demand for donkey skin has caused donkey prices to quadruple in the last decade to 8,000 yuan ($1,160 U.S.).


China Imports Donkeys for Medicine

Also, donkeys are hard to breed quickly. Pregnancies can last up to 14 months, which makes replenishing a herd difficult. That means supply can't keep up with demand, raising the price of donkeys.

Because of the demand, state-owned producer Dong-E-E-Jiao Co. launched a donkey exchange in China in December 2016.

Here's how it works...

How the New China Donkey Exchange Operates

If a farmer wants to sell a group of donkeys, he will call the China Donkey Exchange, located in the Shandong province.

The exchange will then send an employee to confirm the donkeys exist and meet the quality standards of the exchange. The exchange helps buyers and sellers settle on a price, then arranges for shipping after the deal is done.

China Donkey Exchange

The company told Bloomberg over 370 million yuan worth ($53 million) of donkeys have traded on the exchange since it opened in December 2016.

But those numbers could climb even higher as Dong-E-E-Jiao makes the exchange more accessible. It plans to launch web trading and app trading for the exchange at some point in April. And by the end of 2017, the company expects 1.5 billion yuan ($217 million) worth of trades.

When properly run, exchanges like this can help fuel economic growth, matching buyers with sellers. However, with the rise of exchanges in China, there's also been illegal activity because of what some call "patchy oversight."

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Unfortunately, some investors learned this lesson the hard way...

Investors Scammed by Chinese Exchanges

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In 2015, Chinese police accused the owner of the China Gold & Silver Trade Center of fleeing with customers' funds.

The website became inaccessible, phone calls couldn't go through, and the company didn't answer emails.

Problematic exchanges "siphon funds from proper markets to participate in speculation, undermine order in financial markets, and should be cleared promptly," Wang Deyi, a lawyer representing cases against regional exchanges, told Bloomberg.

Chief Strategist Ha Hong of Bocom International Holdings Co. also fears some of these trading platforms are turning into places for speculative investments.

"Many of the exchanges started as a place of hedging but evolved into a place of speculation which in excess brings no obvious benefit to the real economy," Hong told Bloomberg.

We wanted Money Morning readers to be aware of these exchanges because we know our readers are always looking for new investment opportunities in China.

And during our research, we found a better way to play the Chinese market through a U.S. defense contractor...

Secret Weapon Set to Foil China's Master Plan: The South China Sea is about to get violent, and the Chinese have an alarming new superweapon they think gives them the upper hand. Or at least that's what their war hawks think. But they couldn't be more wrong. Thanks to a small $6 U.S. defense contractor with a top-secret technology, the Pentagon has an ingenious new checkmate move designed to stop a Chinese sneak attack dead in its tracks. Click here to learn more...

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