December 4, 2009 / 2:30 AM / 9 years ago

China official blames foreign banks for derivatives losses

BEIJING, Dec 4 (Reuters) - A senior Chinese government official has blamed some of the leading foreign banks for designing complex financial products that triggered losses by state-owned enterprises last year.

Writing in the official Study Times journal, Li Wei, deputy director of the State-Owned Assets Supervision and Administration Commission (SASAC), said 68 Chinese firms suffered losses of 11.4 billion yuan ($1.67 billion) after signing contracts to buy call options and sell put options with foreign banks.

He blamed Goldman Sachs (GS.N), Citigroup (C.N), Merrill Lynch, Morgan Stanley (MS.N) and other international banks for providing “extremely complicated” and difficult to understand derivatives products.

Li said China Eastern Air Holding Company, China National Aviation Holding Company and Cosco Group were among the firms that made the losses after the price of oil fell below the exercise prices of the options.

“After the global financial crisis, people mostly think of the United States and other western countries when talking of ‘high leverage to derivatives products’, but there are also domestic enterprises that have been deeply affected,” Li said.

But Li added that the losses should not discourage the state enterprises from buying derivative products as Chinese firms would find it hard to compete with foreign rivals without them.

The China State-owned Assets Supervision and Administration in September gave an apparent state sanction for companies to back out of loss-making deals, confirming reports that it may allow state firms to default on some of their oil options trades and even take legal action to minimise losses. [ID:nPEK14474] ($1=6.826 Yuan) (Reporting by Beijing newsroom, Editing by Sambit Mohanty) ((; +86 10 6627 1289; Reuters Messaging: ((If you have a query or comment on this story, send an email to

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