To push forward the reform of China's financial system, endeavors should be made to further expand the financial market and rationalize the distribution of social resources, said Dai Xianglong, mayor of Tianjin and former governor of the People's Bank of China (PBOC), the country's central bank.

Experts at the forum accredited the failure to utilize the social resources reasonably mainly to an irrational financial structure, illustrated by an unduly high proportion of indirect financing and an undesirably low ratio of direct financing.

Last year's bank loans, the main means of indirect financing, accounted for 79.4 percent of total money raised for non-financial enterprises, whereas only 20.6 percent was raised through stocks, treasury bonds and corporate bonds, according to a report on China's monetary policy by the PBOC.

The irrational financing structure had deprived individuals of the chance to turn huge amounts of personal cash into corporate assets, and had subsequently weakened enterprises' ability to borrow more from banks and simultaneously increased the risks of commercial banks in credit extensions, according to Dai Xianglong.

The deepened financial reform and increased fundraising channels helped reduce debt burdens of Chinese enterprises over the past few years, but their liabilities-to-assets ratio stayed high.

Statistics show that in 2001, state-owned enterprises and non-state businesses had an average liabilities-to-assets ratio of 58.3 percent, down 5.6 percentage points from the 1996 level. However, the debt ratio was still high allowing for real assets losses for the enterprises, implying a slow transfer of cash from individuals to corporate accounts.

"The situation must change," warned Dai Xianglong. The corporate financing structure now tended to be more irrational, he added.

By the end of 2002, China had raised US$680 billion in foreign capital through foreign direct investment, offshore listings and overseas borrowing, as against more than 400 billion US dollars of foreign exchange reserves and offshore corporate and banking assets and against a bank deposits rate of up to 40 percent at home, according to statistics provided by the forum.

Dai's views were echoed by Xie Ping, director of the central bank's Research Institute.

Priority should be given to efforts to standardize the Chinese capital market and encourage personal capital to transform into corporate assets through a variety of financing means, Xie said at the forum.

China's gross domestic product grew at an average rate of 7.7 percent in each of the past five years, thanks in part to a sustained moderate monetary policy, reforms of state-owned commercial banks and policy-oriented banks and intensified control of the domestic financial market.

(Xinhua News Agency April 11, 2003)