China c.bank official still sees room for derivatives

BEIJING, Feb 27 - China will continue carefully nurturing the country's derivatives markets, a central bank official said, arguing that such financial products were not the "root cause" of the U.S. sub-prime crisis.

Guo Qingping, an assistant governor of the People's Bank of China, made the remarks in an interview published Friday in which he also pressed the government's case that the country's banks were generally sound and remained open to controlled financial innovation.

Guo told the Chinese-language Financial News that the central bank would "continue promoting the steady, healthy and regulated development of markets in financial derivatives products" -- with plenty of risk oversight from authorities.

He said that the complicated financial products were not themselves the cause of the U.S. sub-prime crisis, blaming instead lax lending and credit rating, over-complicated derivatives, and inadequate regulation.

"The securitisation of assets as financial products was not the root cause of this financial crisis," he said.

Guo also echoed remarks from Liu Mingkang, chairman of the China Banking Regulatory Commission, who said on Thursday that the nation's banks were in good shape to ride out the global financial crisis.

Some analysts have expressed concern that the rush of lending could swell bad debts on banks' books, but Liu Mingkang said the ample credit would give a lift to the economy and was nothing to be worried about.

Guo said China's banks could not avoid some impact from the global crisis, but also said that impact would be buffered by stricter monitoring by authorities. "The blow to our country's financial system has been limited," he said.