From the Caijing Annual Conference

The Chinese economy needs a mature capital market now more than ever, and new financial tools are being introduced for its construction, said Qi Bin, a top research director at the China Securities Regulatory Commission (CSRC).

Western economies were “burned” by the global financial crisis, Qi said December 13 at Caijing’s annual conference. But China “should not hesitate to develop our capital market.”

“Following the financial crisis, we should reaffirm” the nation’s commitment to financial market development, he said.

Merger and acquisition lending, real estate trusts, and bond programs were among the recent market innovations cited as examples of the ongoing development.

Qi suggested giving the bond market more room to grow, since current demand for bonds exceeds the relatively small supply. His view was shared by Cai Jinyong, CEO at Goldman Sachs Gao Hua Securities, who suggested boosting the market by combining bond programs.

“For such a long time, companies used IPOs on China’s capital market to raise money,” Cai said. “This was an early stage of development” and now “our capital market should play the role of finding and matching premium resources.”

Another example of market development will be the emergence of real estate investment trusts (REITs), which Chinese bank regulators approved in December for the first time in hopes of diversifying investment channels and stabilizing the property market.

But Qi, who worked as an investment banker on Wall Street before joining CSRC, is particularly interested in the M&A lending market.

On December 9, responding to Beijing’s initiative to encourage the financial sector and support economic growth, the nation’s banking regulator CBRC for the first time gave legal status to M&A lending.

That move paralleled a series of government measures and initiatives aimed at encouraging state-owned enterprises to pursue overseas, cross-region and cross-industry consolidations. As the number of overseas M&A transactions by Chinese enterprises grows, CBRC said, M&A lending services should support international expansions.

Qi said China should take advantage of current opportunities by restructuring its growth model while expediting capital market development. On the other hand, he said there’s no need to worry about a slowdown in annual GDP growth to 8 or 9 percent, from the double-digit growth in recent years.

“It’s no surprise that China’s GDP growth has slowed down because we have kept this fast pace for almost 30 years,” said Qi. “The experience of other countries gives us a chance to reflect on this as a time for change.

“Looking forward,” he said, “the solution is to restructure our growth model from labor-intensive and high energy consumption to knowledge-based, sustainable growth.”