{{B}}Capital markets need a push.{{/B}}
It is an urgent task for China to accelerate the development of the capital market to facilitate the restructuring of its State economy, according to a recent report by the State Council Development Research Centre.
China has made considerable progress in developing its capital market in the past decade. Acquisitions and mergers have given a strong impetus to the reorganization of enterprises.
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First, development of the three elements of China's capital market has not proceeded at the same pace.
Though the stock market has developed rapidly during recent years, the bond market and medium-and long-term credit market have lagged behind.
In the bond market, the issue and trading of corporate bonds is far behind those of treasury bonds.
Because the risk and yield of bonds and stocks differ, a well-developed bond market can increase the choice for investors and those seeking to raise capital.
In developed market economies, funds raised by enterprises through bond financing are several times higher than those raised through the issue of shares.
The situation is the reverse in China. In 1997, enterprises raised 132.5 billion yuan (US ＄16 billion)through stock issues but a mere 30 billion yuan (US ＄3.6 billion) through bond issues.
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To develop the medium-and-long-term credit market, the State should break the monopoly of inefficient State banks and develop joint-stock banks, it said.
Second, non-State enterprises and small and medium-sized enterprises are still handicapped in the capital market.
Obstacles remain to their access to the medium-and-long-term credit market despite the central bank's recent efforts to make more loans available to them.
While large State-owned enterprises benefit from the State' s preferential policy in issuing bonds and stocks, most non-state enterprises and small and medium-sized enterprises have no chance of being listed on the State's official stock market, but have to turn to volatile over-the-counter markets which have not yet been legalized.
Non-State enterprises do not even have equal rights in the State's preferential policy in encouraging the merger and reorganization of enterprises.
The State should regulate secondary markets to provide a fair capital market for non-State enterprises and small and medium-sized enterprises, the report said.
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Since the merger and acquisition of enterprises usually involve a huge amount of funds, enterprises can rarely raise enough money from internal reserves.
Therefore, the State should support financing of the reorganization of enterprises, stressed the report.
Banks should add credit for mergers and acquisitions to their loan categories.
Additionally, restrictive regulations on enterprises' financing of mergers and acquisitions through the issue of corporate bonds should be eased or abolished.
Finally, there is a serious shortage of institutional investors aiming at stable long-range profits in China's security market. To develop institutional investors and investment funds, the State should encourage pension insurance and trust funds, the report proposed.
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In the meantime, institutional investors should also strengthen their own management and standardize their operations to raise efficiency.
In China's underdeveloped capital market, inadequate supervision has resulted in excessive speculation and misconduct by enterprises and investors.
To protect the interests of the masses of small and medium-sized investors, the State should urgently improve its supervision of the capital market, the report said.
The focus of its supervision should be shifted from the investment value of securities to the credibility and completeness of listed companies' reports.

A. Third, enterprises still face many difficulties in financing reorganization through the capital market.
B. However, there is an urgent need to improve the country's capital market, the report said.
C. The growth of these three funds would help maintain a stable capital market and facilitate the reorganization of State-owned enterprises.
D. In addition, the State should allow circulation of shares owned by the State in listed companies to facilitate acquisition of listed companies through the secondary stock market.
E. So, China should make greater efforts to boost its corporate bond market, urged the report.
F. Against the backdrop of the Asian financial turmoil and shrinking Asian markets, the EU has become an important export target market for Chinese exporters.