Clear visions for industry efficiency, better pricing, definition of risks amid others are what China needs for its capital market development, said Kevan Watts, Chairman of Merrill Lynch International Inc at the 18th China Daily CEO Roundtable on November 18 in Beijing.

The roundtable, with the theme "Capital Market Reforms - Visions, Process and Imperatives", involved senior officials from China Securities Regulatory Commission (CSRC) and China Banking Regulatory Commission (CBRC) together with some 30 CEOs and senior executives from global financial institutions.

"Financial systems dominated by banks cannot work anymore. They need to be more flexible and sensitive to prices and risks," said Watts, who has decades of extensive industry experience in Europe, the Middle East, Africa and the Asia Pacific and is also the honorary chairman for the roundtable.

He started discussions with an assessment of China's inherent financial systems structure. "A system based on banks is not sustainable. Financial services all over the world have revolutionized through information technology."

By Alexander Wan and Selina Lo

There is no denying that China has achieved a considerable feat in establishing the basic infrastructure of a securities industry within the space of 15 years. However, there are numerous structural impediments that persist in China's securities markets which prevent them achieving the objective of allocating capital efficiently and functioning as a proper market mechanism. Many of the problems stem from the situation inherited when the theoretical foundations of the market were laid, and others relate to the restrictions resulting from the current environment in China.

Instead of developing a market where the most deserving efficient companies were awarded with funding opportunities, a quasi-market structure evolved to carry on financing those companies with the most urgent socio-economic problems aligned with the strongest government connections. Faced with minimal or no deposit interest from bank savings, China's savers were galvanised to channel their savings into pre-dominantly lacklustre investments.

By Barry Livett

China is undergoing an extraordinary period in its economic development as it moves from a centrally planned economy to the vibrant marketplace we see today. Much of the reform has been done at a measured pace.

Two decades of economic growth and the consequent increased financial requirements of domestic companies have resulted in the need for more international participation as China moves to create open and transparent capital markets. Now is the time for China to allow a more dynamic rate of change.

Chinese regulators in the past few years have made encouraging progress in their efforts to open up the market and make China more competitive by steadily increasing the quotas for Qualified Foreign Institutional Investors (QFII); allowing more foreign participation in several financial services sectors; moving towards a more flexible currency policy; introducing stock market reforms; and reorganizing domestic financial institutions.

The China Securities Regulatory Commission (CSRC) is in the process of reforming non-tradable shares and this is a priority that is essential to the further development and improvement of the market. The regulator also recently proposed allowing companies to offer stock incentives to bolster corporate profitability and governance.

These are all changes in the right direction, but more needs to be done and needs to be done quickly. It is of the utmost importance for China to develop a larger domestic institutional investor base in order to create deeper, more mature equity and fixed-income markets. At the same time, to fund the expansion of domestic industries and maintain a healthy pace of economic growth, China needs to further open up its capital markets to international companies. This entails allowing foreign companies to take a controlling stake in domestic financial institutions and gain greater access to the domestic equity and fixed-income markets.

By Kevan Watts