China should take advantage of its flush liquidity conditions and low interest rates to boost non-bank financing as a way of developing more mature financial markets, a senior central banker wrote on Monday.
Chinese firms have long relied too heavily on bank loans as a source of funding, sparking concern that the nation's lenders are carrying too much risk even as some are still struggling with a legacy of bad loans.
Ma Delun, assistant governor of the People's Bank of China, wrote in People's Daily that abundant capital and low rates were creating opportune conditions for companies to raise funds cheaply and directly in domestic financial markets.
China should do more to spur direct financing by taking a number of steps, including allowing firms to issue bonds without having to secure bank guarantees for all bond issues having maturities of more than one year, Ma said.
The suggestion was in line with pledges to facilitate easier access to the market by the National Development and Reform Commission (NDRC), the country's top economic planner and a supervisor of the corporate bond market.
China should also allow financial institutions to be able to securitise a broader range of assets that were underpinned by stable capital flows, he wrote.
To help boost the nation's fledgling capital markets, Ma said China should allow institutional investors such as securities brokers, insurers and pension funds to invest in a wider range of products.
The government should also allow more foreigners to participate in Chinese financial markets by broadening the investment scope of the so-called qualified foreign institutional investor scheme, known as QDII.
China should consider allowing some foreign investors to enter the interbank bond market, he said.
China's corporate bond market has expanded rapidly in recent years. The NDRC gave its approval in March for 95 firms to issue a record 99.2 billion yuan ($13 billion) in bonds in 2007, up from 60.8 billion yuan in 2006.
State media have reported that the agency is considering raising the quota to $39 billion this year. ($1=7.66 yuan)