State-owned enterprises (SOEs) can now make use of financial derivatives offered by the newly established China Financial Futures Exchange to preserve state assets and dodge market risks, a senior official told Xinhua.

"It wouldn't be a problem if SOEs conducted hedge trading at the exchange," said Shao Ning, vice minister of the State-owned Assets Supervision and Administration Commission.

This indicates a loosening of restrictions by the Chinese government to give large and medium-sized SOEs the chance to participate in futures trading, said experts. Regulations on investments in financial derivatives were held off previously because speculative trading was regarded as "special and complex". Air China, the only Chinese airlines that made profits in the first half of the year, might have facilitated the change.

According to its mid-year report, the company earned 102 million yuan, or 69 percent of its total net profit, by hedging aviation fuel costs.

Wang Zhen, president of the Management of Business Administration Institute, China Petroleum University, said that China should not be conservative about futures. "The key is to keep the internal risks under control," he said.

China Financial Futures Exchange, the country's fourth futures exchange focusing on financial derivatives trade, was inaugurated on September 8 in Shanghai and is expected to start trading in mainland stock index futures.

(Xinhua News Agency October 8, 2006)