A top official of China's securities watchdog yesterday urged accelerated reform of the nation's capital market, which will help it play a more effective role in promoting economic and social development.

China Securities Regulatory Commission (CSRC) Vice-Chairman Tu Guangshao said: "The investing public has not adequately shared the benefits of fast economic growth. There is still a gap between what capital markets can offer and what investors really demand."

Tu promised continuing support for the development of new investment products and a market-based innovation mechanism.

"In the near future, we will step up our efforts for fixed-income instruments such as corporate bonds of listed companies and asset-backed securities. We will also launch new staple commodities futures contracts, financial futures, and other financial derivatives," he said.

Tu made the remarks at the 2006 International Organization of Securities Commissions (IOSCO) Emerging Markets Committee Meeting hosted by the CSRC in Shanghai.

Indirect financing through banks has been decreasing in developed markets since the 1980s, making their financial systems increasingly flexible, Tu noted. In contrast, China's financial system has relied heavily on bank financing.

"Therefore, we must accelerate the development of capital markets to increase the flexibility and stability of our financial system and promote sustained, fast and sound economic growth," he said. Capital markets should facilitate a change in the pattern of economic growth and industrial upgrading, promote independent innovation and the development of high-tech companies, and support the growth of small and medium-sized enterprises, Tu remarked.

According to China's 11th Five-Year Plan (2006-10), the nation's economic structure will be upgraded by increasing the role of the service sector, while resources will be more efficiently utilized. Capital markets should also enable investors, especially public investors, to share the benefits of economic growth, and should help enhance competitiveness, Tu added.

China's capital markets and the nation's securities industry have gradually opened up over the past decade, Tu said. By the end of July 2006, there were seven joint-venture (JV) securities firms and 23 JV fund management companies. Furthermore, since the launch of the qualified foreign institutional investor (QFII) scheme in 2002, the number of QFIIs has grown to 42, with their total investment quota nearing US$8.

Editor: Yan