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Regulator to probe SOE's financial derivatives' exposure

CHINA'S state-owned asset regulator will launch an investigation into centrally administrated state-owned enterprises' investments in the financial sector and help them avoid risks.

A total of 28 SOEs, including Air China, China Eastern Airlines and China COSCO Holdings Co Ltd, have invested in financial derivatives but most suffered losses.

SOEs should be aware that they are aimed at avoiding risks and saving costs rather than speculation when investing in financial derivatives, said Li Wei, vice minister of China's State-owned Asset Supervision and Administration Commission.

Air China had lost 7.5 billion yuan (US$1.09 billion) on fuel-hedging contracts by the end of last year and China Eastern's wrong-way bets on hedging dragged its revenue down 6.4 billion yuan.

Li said SOEs which planned to invest in financial derivatives must meet four requirements, including obeying hedging rules, recruiting financial institutions for consultation and controlling risks.

"SOEs, mainly dealing in production, are short of financial talent to deal in such investments, which led to underestimation of risks and violations, so the commission will issue suggestions to help these companies after an investigation," Li said.

He also urged local state-asset regulators to investigate locally administrated state-owned enterprises.

Chinese SOEs reported the first annual fall in profit last year since 2002, tumbling more than 30 percent from a year earlier to 665.29 billion yuan.

The commission plans to put a supervision system into use by the end of this year to monitor share transfers of SOEs, Li said.

He added that all share transfers should be listed for trading in equity exchanges and the country will further develop a unified transaction system in four exchanges in Beijing, Tianjin, Shanghai and Chongqing.


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