China embraces credit derivatives

China has finally given the go-ahead to create a synthetic credit risk transfer market following years of deliberation. The move should facilitate the creation of important new risk management tools on the mainland with built-in safeguards such as strict limits on leverage. But there are concerns that China is moving too cautiously. Kathy Wang reports

After witnessing highly leveraged synthetic credit structures such as collateralised debt obligations wipe billions of dollars from international portfolios during the 2007-08 global financial crisis, the Chinese authorities were relieved that China's financial institutions came out relatively unscathed. But the losses raised fresh concerns about the dangers of setting up a synthetic credit risk transfer market in China, with some parties fearing such a market could end up being used primarily