The Chinese government has instructed large state-owned enterprises (SOEs) directly controlled by the central government to establish special departments for their stock investment.

 

A circular issued by the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) said all SOEs directly controlled by the central government are prohibited from stock dealing under personal accounts.

 

"SOEs directly controlled by the central government should enhance management and supervision of high-risk investment in financial derivatives," the circular said.

 

SOEs should aim their dealings in futures, options or other financial derivatives at hedging risks and fixing costs, instead of speculation, it said.

 

SOE investors should closely monitor the market so as to strictly control high-risk and fluctuating investment, it said.

 

SASAC chairman Li Rongrong said earlier that the SASAC would improve supervision of central SOEs' investment in high-risk products and establish a responsibility system for heavy economic losses.

 

Central SOEs should neither invest blindly in high-risk investment -- such as stocks and financial derivatives -- nor shun them, said Li at a seminar.

 

In 2004, the state-owned China Aviation Oil (Singapore) Corporation Ltd. (CAO) lost US$550 million on irregular speculative transactions in the petroleum options market, arousing public ire at SOEs' investment in high-risk financial products.

 

Since the beginning of this year, when China's stock market resumed its bullish momentum, large SOEs, including Shanghai-based Baoshan Iron and Steel Company, have greatly increased investment in the market.

 

(Xinhua News Agency November 15, 2006)