A Chinese official Tuesday urged the country's state-owned enterprises (SOEs) directly controlled by the central government to invest cautiously in high-risk financial derivatives like futures and options.

Central SOEs should neither invest blindly in high-risk investments -- such as speculative funds and financial derivatives-- nor shun them, said Li Rongrong, chairman of the State-owned Assets Supervision and Administration Commission of the State Council (SASAC), at a seminar.

"An international enterprise has no chance of excelling in fierce global competition if it can't make use of financial derivatives to dodge risk," said Li.

This is the first time China's biggest boss has softened his attitude towards futures transactions since 2004, when state-owned China Aviation Oil (Singapore) Corporation Ltd. (CAO) lost 550 million U.S. dollars on irregular speculative transactions in the petroleum options market.

The financial mishap led to strict control of high-risk investment by central SOEs. Some of them have since cut their investments by half.

Li attributed most failures in futures investment to misguided actions, weak risk control and unsound internal control mechanisms, saying the roots lie deep in unhealthy corporate governance and inadequate supervision of senior executives.

Central SOEs should choose investment products in accordance with their core businesses, management objectives, capital strength and management proficiency, said Li.

He warned enterprises not to invest in unfamiliar fields, adding that speculation is forbidden.

The SASAC will improve supervision of central SOEs' investment in high-risk products and establish a responsibility system for heavy economic losses, said Li.

Since 2001, China has given 31 large SOEs permits to invest in overseas futures markets such as crude and refined oil, nonferrous metals and farm produce, according to an official with the Department of Futures Supervision of the China Securities Regulatory Commission.

Editor: Yan