EU pushes China on greater financial transparency

BEIJING (Reuters) - China needs to be more transparent in explaining its financial policies to the world following a stock market tumble over the summer, and be aware of risks from new financial instruments, a senior European Union official said on Monday.

World financial markets have been watching closely since Chinese stock markets collapsed in mid-June following a long bull run, in turn dragging down indices across the globe.

In reaction, Beijing unveiled a series of policy changes and intervention aimed at shoring up markets and staving off full-blown panic, though some steps, like investigating reporters for spreading rumors, have appeared out of step with Chinese efforts to modernize how it handles the economy.

Speaking after a high-level EU-China economic and trade dialogue and a meeting with Chinese Premier Li Keqiang, European Commission Vice-President Jyrki Katainen said he had been encouraging China to communicate more clearly what it was doing.

"There are millions of people who are assessing one specific country's moves in the international markets, so the reaction can be quite unintended if there are misunderstandings or lack of information why some particular moves have been done," he said.

There was clearly an overreaction to the moves in the Chinese stock markets, Katainen added.

"One interpretation why the markets overreacted was because there was not enough information in the market, and people started to think that the market fluctuations were the clearest sign of some severe meltdown. This is obviously not the case."

China must also learn the lessons from the United States and Europe about risky new financial products, Katainen, a former Finnish prime minister and finance minister, said.

"The size of the financial sector and capital markets will be many, many, many times bigger in China in the future than it is at the moment, and there will be a time when no currency reserve can afford to bail out all the losses if something bad happens."

He said Li told him that global markets had overreacted to China's market volatility, that the Chinese economic fundamentals are still relatively good and that China's economy is in a transition period and will take some time to adjust.

China and the EU are close economic and business partners.

In June, Li pledged to invest in the EU's new 315 billion-euro ($351.98 billion) infrastructure fund, though did not say how much China would spend.

Katainen said he also did not know how much China would be willing to invest in the fund.

(Editing by Muralikumar Anantharaman)