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2 Oct 2006

China's Banking Chairman warns of Hedge Fund risks.

At the end of April 2006, there were altogether over 28,000 banking institutions in Mainland China. The total assets of the banking industry registered nearly RMB40 trillion, accounting for more than 90 per cent of the total financial assets in the Mainland.

In 2005, 72 foreign banks from 21 countries have established 254 operational entities in the Mainland. Their total assets amounted to $88 billion. In addition, hedge funds and non banking financial institutions, including finance companies affiliated to enterprise groups, trust & investment companies and financial leasing companies are now organizing business re-engineering by actively drawing experiences from their counterparts in Hong Kong.

In short, the Mainland banking industry as a whole has been moving forward on the right track.

But China’s banking regulatory head said steps are being taken to regulate the increasingly powerful $1.2 trillion hedge fund industry,
“Regulators in all countries should strengthen the monitoring of hedge funds and be on alert against any counterparty and liquidity risks they introduce,” Liu Mingkang, head of China Banking Regulatory Commission, said in a statement.

The notice followed meetings that Liu held with his counterparts from Singapore, Italy, Germany, Thailand and Hong Kong from September 16 to 26. Liu suggested that regulators should exchange information about hedge funds promptly to make sure their trading does not cause regional or global economic instability.

Liu noted the increasing activity of hedge funds in Asian countries including China, India, Singapore, Hong Kong and Thailand.

His suggestion comes days after U.S. hedge fund Amaranth Advisors disclosed the biggest hedge fund loss ever, about $6 billion, on wrong-way natural gas market trades.

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