Financial market needs right tools

While the international capital markets were gripped by a sense of doom last week, a senior Chinese legislator heroically declared at a public forum that "it is time" to speed up the process of market deregulation in China to improve capital efficiency.

On first hearing, these words sounded brash at a time when excessive deregulation was blamed, at least partly, for the outbreak of the US credit crisis that sent the world capital markets into total disarray before a massive rescue operation was mounted last Thursday by the US government and central banks of numerous other countries and economies.

On second thoughts, maybe she was right. The Chinese capital market is too tightly regulated to allow room for financial intermediaries to effectively and efficiently match the respective needs and risk profiles of borrowers and lenders. And limited sources of funding are seen as a major constraint on the growth of a private sector comprising mainly of small- and medium-sized enterprises.