Fears in some circles that foreign direct investment in China's financial sector poses a threat to national security are overblown, a senior official said on Sunday.

Xie Ping, manager of government investment agency Central Huijin, said the main security risks in any country were bound up with its settlements system and the stability of its currency, neither of which had anything to do with bank ownership.

Xie Ping, manager of government investment agency Central Huijin, said that fears in some circles that foreign direct investment in China's financial sector poses a threat to national security are overblown. [file]

"We cannot find any academic theory to justify the comment that there is a link between shareholding structure and a country's financial security," Xie told a financial forum.

Such arguments were "exaggerated and sensational", Xie added.

Some nationalists and left-wingers have whipped up public opposition to the sale to foreign strategic investors of stakes in big Chinese state-owned banks in the run-up to their initial public offerings.

The argument of opponents that the stakes were sold too cheaply did not hold water, Xie said. The involvement of foreign investors had bolstered the credentials of China's banks and ensured the success of their public share offerings, he argued.

Strategic investors also needed to be rewarded for the risks they ran, Xie added. He noted that shares in Royal Bank of Scotland had fallen hard when it announced plans to buy into Bank of China, the country's second-biggest lender.

Shares in Bank of Communications , China Construction Bank Corp. and, most recently, Bank of China , have risen smartly since they were floated in Hong Kong.

As their biggest shareholder, Huijin has made most money on paper out of the post-IPO run-up in the banks' share prices.

Criticism has nevertheless persisted that foreigners had deprived domestic investors of the chance to buy shares touted by many analysts as a proxy for China's double-digit economic growth.

But Xie said domestic Chinese financial institutions and big firms, when approached before the IPOs, had such a poor view of the banks that they were unwilling to pay enough for the shares.

Xie also defended the commitments that Chinese banks had made to their foreign partners as fair and in line with the interests of the state.

Foreign strategic investors, with representation on the board, were also more effective than government bureaucrats in forcing the pace of reform in the banks in which they own shares, Xie added.