Ten Years to come for Chian..

China still has a long road to travel before becoming an international financial hub, although it has made big strides in recent years, a report by Xinhua Far East China Ratings says. Among the obstacles facing China's financial system, the credit rating agency said, is a lack of balance -- it is much easier for large enterprises to raise capital than it is for small and medium-sized enterprises. The system is also hampered by an underdeveloped fixed-income market, a lack of institutional investors, weak disclosure rules and a lack of innovation. "For the sound development of the financial system, China has to look at the fundamentals," said Chung-Hsing Chen, vice president and head of ratings at Xinhua Finance, the parent of Xinhua Far East. "I think the regulators here have matured a lot in the past two decades but they still do not have sufficient exposure to the global environment as to what it takes to make the market work better," said Chen. The report said the government needs to gradually deregulate the markets. Integration of the regulatory bodies could help the process of oversight and deregulation of the markets, it said. "In order to promote fair competition in the market, the government should relax stringent approval requirements for traditional businesses and normal projects. Xinhua Far East endorses speeding up the development of multi-layered capital markets." At a minimum, it said, the government should strive to further diversify the ownership structure of state-owned enterprises, strengthen corporate governance, and encourage foreign private-sector companies to list in the A-share market. Developing the country's bond market in order to provide securities firms with more revenue should be a major focus of reform, Xinhua Far East said. Because of their heavy reliance on trading income, local securities houses are over-exposed to fluctuations in the stock market. Instead, they should diversify their activities and become financial holding companies, the report said. Given the current weak state of global markets and the amount of reform that needs to be undertaken, it could take a decade for China's capital markets to achieve international status. "In five years China's securities industry will be much more mature, but in ten years it could become a major financial hub for the region," Chen said.