CHINA pledged Friday to push ahead with a broad range of capital market reforms as it seeks to encourage more efficient capital allocation, increase foreign investment and improve transparency of its markets.

    In a wide-ranging statement of policy principles, the State Council, or Cabinet, said it would develop a system for direct bond issuance by local governments, streamline the approval process for initial public offerings (IPOs) and remove some restrictions on the use of financial derivatives.

    Separately Friday, the Securities Association of China issued new rules governing IPOs.

    While the government has previously discussed many of the reforms mentioned by the State Council, the statement signals a fresh commitment to pushing ahead with the proposals.

    Quotas would be increased for both inward and outward foreign investment under the Qualified Foreign Institutional Investor (QFII) and Qualified Domestic Institutional Investor (QDII) programs, the State Council said.

    “China’s capital markets are still not mature, and some systemic problems still exist. New problems are continually appearing,” the State Council said in a statement posted on its website late Friday.

    “We will persevere with market-based and rule of law-based orientation and uphold open, equal, and fair market order,” the statement said.

    In China’s policymaking process, the State Council sets out goals and principles, leaving the relevant agencies — including the People’s Bank of China, the China Securities Regulatory Commission and the China Banking Regulatory Commission — to follow up with specific regulations.

    The State Council said it would create a system for direct bond issues by local governments. Currently, they are forbidden from directly selling bonds or borrowing from banks, but have skirted this ban by borrowing through special-purpose vehicles.

    On derivatives, the State Council promised to develop more varieties of commodity future and options, commodity indices and tradable carbon emission credits.

    It pledged to reduce restrictions on the use of derivatives by both institutional investors and corporations for the purpose of hedging and risk management. (SD-Agencies)