Foreign players in China's debt market could force long overdue change. Photo: iStock

It is necessary to expand the scale of insurance funds and capital markets amid the process of promoting supply-side reform in the financial sector, said Yang Chengzhang, chief economist at Shenwan Hongyuan Securities, Securities Times reported.

The structural reform of the financial industry should focus on solving three problems, said Yang.

The priority is to solve the shortage of long-term funds. China’s savings rate is high, but the country is short of long-term funding. We can learn from the experience of the US, however.

In the US, long-term funds to the capital market are mainly provided by the insurance industry, the largest financial sector in the country.

Second, the nation must solve the shortage of funds with high returns and high risks in the financial market. Since last year, a large number of low-rating credit bonds find it hard to issue, because investors are reluctant to buy bonds with high earnings but low credit rating.

However, in foreign countries, such bonds with high returns and high risks are good investment products if the risk compensation mechanism is working well, Yang said.

Third, China must fill in the shortage of long-term equity investment funds.

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