The report that the State Assets Supervision and Administration Commission (SASAC) would allow Chinese state-owned enterprises (SOEs) to default on derivative deals was misinterpreted, Reuters reported, citing a government source. The source said the warning was only meant to address specific contracts and SASAC was targeting specific deals that may have been too complex for the SOEs to understand. The specific deals or the banks involved have not been named. The report on Saturday in Caijing magazine, quoting an unnamed industry source, triggered anger and dismay among investment banks, and a momentary panic over the possibility of defaults on commodity imports or heavy position unwinding, although bankers said both were unlikely. Chinese airlines and shipping companies have reported huge paper losses on derivative hedges that turned negative when commodity markets dropped late last year.
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