China is committed to speeding up the development and opening up of its capital markets, but the government prefers a gradual approach to achieving the objective, a securities regulator said yesterday.

"The development of capital markets can not be done in a day," said Tu Guangshao, executive vice-chairman of the China Securities Regulatory Commission.

"It is a long term effort and a systematic project along with the country's economic development and reform of the financial sector," he said.

According to Tu, shortcuts to the development of the market cannot support sustainable growth without first building a market structure, mechanism and regulatory foundations.

"The reform of the capital markets needs to rest on a wider foundation," he said, adding more should be done to perfect the country's legal system, property system, corporate governance and even business culture, in addition to developing the market itself.

Ed K Smith, global chief operating officer and assurance strategy leader for PricewaterhouseCoopers, United Kingdom, agreed that to be effective, securities reforms must follow a step-by-step process.

Policy makers need to focus on "reputation, ease of access, ease of exit, ability to do transactions and the implications of currency restrictions," he said.

"We have accomplished a great deal, but compared with mature markets, there is still a lot to be done," said Smith, speaking at the World Economic Forum China Business Summit.

Smith is confident that capital markets can make progress if the reforms stick to the right path that is to building a market mechanism and reducing government interference.

According to Smith, the government is attaching great importance to the development of capital markets and has made efforts to achieve the goal.

"During the past few years, we have adopted reforms including the amendment of the securities law and share reform, which is still undergoing, to develop the capital markets," he said.

In addition, China has not only met, but outdone its commitment to the World Trade Organization in terms of opening up its capital markets.

"The government is committed to further opening up the securities industry," said Tu.

The government is currently reviewing its previous opening moves, to check which sectors have benefited and which need further help.

In June UBS won preliminary approval to invest US$200 million in State-owned Beijing Securities, the first deal giving a foreign firm control of a mainland securities brokerage.

In addition, the ongoing restructure of the securities industry will be completed either by the end of this year or early next year, which will create a more favourable environment to open up the sector.

Tu said China is willing to allow competition in the securities market.

"China has learned from previous experience in developing the brokerage industry that competition and opening up is essential for the industry to develop in a sustainable way," he said.

Before 2005, China had 130 securities companies which the industry watchdog initially hoped to develop through administrative protection.

However, 30 brokerages have been closed or gone bankrupt.

"Administrative protection will not lead to the growth of the securities industry," said Tu.

(China Daily 09/12/2006 page9)