China's banking industry watchdog has issued guidelines to encourage and regulate financial innovation by commercial banks.

The guidelines take effect on Dec. 11, the day on which China will open its banking sector to foreign investment in line with its commitment to the World Trade Organization.

Tang Shuangning, vice chairman of the China Banking Regulatory Commission (CBRC), told a press conference here Wednesday that the guidelines are the first general document issued by China's banking regulator concerning financial innovation by commercial banks.

According to Tang, domestic banks lag behind foreign banks in financial innovation and the CBRC wants to encourage them to spread their wings.

He said non-interest income generally accounts for over 50 percent of the total revenue of major world banks, but the highest rate in China's commercial banks is less than 30 percent.

Tang said China's banking industry must learn to compete with foreign counterparts in the field of financial innovation.

The CBRC will set up a legal environment that allows both Chinese and foreign invested banks to launch new financial services.

Improving the risk-control capability of commercial banks is another emphasis of the guide, he said.

The guide clarifies the obligations of commercial banks to consumers, including fair and correct disclosure of information, professional counseling services and an effective consumer complaint system.

The guide also requires commercial banks to fully inform consumers of the risks of investing in financial products.

According to Tang, the CBRC has issued a series of rules concerning derivatives trading, electronic banking services and financial consultation for individuals.

62 commercial banks are authorized to trade derivatives in China with total turnover reaching 14 trillion yuan last year. Electronic banking transactions are up to 100 billion yuan and 1.03 billion bank cards have been issued.

(Xinhua News Agency December 7, 2006)