China will make further efforts to enhance financial market reforms and further the opening up of its banking, securities and insurance markets, said three of China's top regulators yesterday.

Although the country values the role of foreign strategic investors in its reform of the banking sector, it will maintain certain restrictions on their entry, said Tang Shuangning, vice-chairman of China Banking Regulatory Commission (CBRC).

His comments came during a keynote speech at the Euromoney conference yesterday in Beijing.

He said the government will never give up control of the big State banks, as they are supposed to protect the nation's interests.

Basically, he said, Chinese banks should invite in large foreign financial institutions with experience in banking operations and management. He added that China's banks do not lack capital; what they lack is advanced corporate governance experience and techniques. Meanwhile, foreign investors can share their Chinese partners' networks and pool of clients, according to the vice-chairman.

Foreign partners are required to send directors to the board to help the bank improve its corporate governance.

And when investing in a Chinese bank, a foreign investor should hold at least 5 percent of the bank's shares for at least 3 years.

"Taking fewer shares is not adequate enough to encourage the participation of the foreign partner while the lock-in time may prevent speculation," Tang said.

Moreover, a single foreign strategic investor will not be allowed to invest in more than two similar banks in China.

This limit is aimed at avoiding the possibility of foreign institutions having control of China's banking industry and to avert any likely conflict of interest between banks with investment from the same foreign investors; Chinese banks always have similar business models, according to the regulator.

Tang also said CBRC would take a close look at the quality of foreign strategic investors to make sure Chinese and foreign partners both benefit from the co-operation.

At the moment, 18 foreign institutions have invested in 16 Chinese banks with investment volume amounting to about US$13 billion.

A single foreign institution can hold, at most, 20 percent of a Chinese bank's share. The limit for aggregated shareholding by foreign investors in one bank in China is 25 percent.

In terms of China's securities market, China Securities Regulatory Commission (CSRC) chairman Shang Fulin said China would do all it could to improve the country's infrastructure construction.

The unsophisticated market system is the biggest hurdle for China's capital market development and should be blamed for the long-term market sluggishness, Shang said.

The chairman said the ongoing A-share market reform was progressing smoothly and would resolve the fundamental problem of China's securities market.

Meanwhile, China revised its Company Law and Securities Law this year and will launch a Bankruptcy Law soon, he said.

The laws will entitle investors to sue misbehaving listed companies or controlling shareholders. Investors' compensation rights and the issuers' obligations will be clearly defined by law.

Qualified institutional investors will also be encouraged to grow and to play a major role in the capital market.

Market innovation will also be a focus of the CSRC and new financial instruments such as financial derivatives will be launched at the proper time.

Furthermore, China is almost ready to launch stock index futures, according to Shanghai Futures Exchange General Manager Jiang Yang.

"We are in the final steps of preparation to launch stock index futures," Jiang said.

As an integral ingredient of the financial market, China's insurance industry has also made sizable progress, said Li Kemu, vice-chairman of the China Insurance Regulatory Commission (CIRC).

By the end of March this year, China's insurers had about 1.3 trillion yuan (US$161 billion) outstanding on their accounts, more than half of which was invested in the securities market rather than in banks, as before.

Among the 46 international insurance institutions on the Fortune's Global Top 500, 27 have entered China.

(China Daily November 3, 2005)