China should consider allowing joint equity-banks

Private capital inflows should also be liberalized.

Zheng Xinli, vice-chairman of the China Center for International Economic Exchanges said easing private capital's entry into the financial industry should be the finance sector's most urgent reform concern.

He noted that allowing private capital to set up joint-equity banks is critical in transforming China’s banking industry from a seller's to a buyer's market. It would reduce financing costs for small and medium-sized enterprises.

Zheng said the market's key role in resource-allocation will be undermined if a double-track price system remains in China's financial market. Lowering the threshold for private capitals' entry into the financial industry is the most important reform agenda item.

He feels private banks and other small, local financial institutions should flourish before the establishment of local financial regulation, deposit insurance and loan guarantee systems. These should be followed by interest-rate liberalization.