China will gradually boost overseas participation in its financial industry and move to more flexible systems of interest rates and foreign exchange in the next five years, a top government official said Monday.

The country is scheduled to raise the ratios of stakes foreign and private funds can invest in small- and medium-sized financial companies at a "proper" pace from 2006 to 2010, said Zhou Xiaochuan, China's central bank governor.

Zhou's remarks, published on the China Securities Journal, also pointed out that China must revamp its banks, brokers and other financial institutions by strengthening healthy firms while forcing poorer companies to shut down.

State-owned commercial lenders are required to attract strategic investors, improve corporate governance, set up risk-management systems and advance incentive plans for executives, Zhou said.

Securities companies should focus mainly on the brokerage business while creating innovative products, the banker said. Brokerage houses must set up systems to oversee the use of clients' funds.

Financial regulators will also allow Chinese insurers to conduct mergers and acquisitions to prop up equity transactions and help qualified insurance companies to list shares overseas, Zhou said.

The People's Bank of China said this month it plans to step up the development of a risk-management system to supervise financial activities as the government moves to invigorate domestic banks and brokerages.

The country will carry out foreign-exchange system reforms step by step and plans to introduce more derivative products to hedge against market volatility, the central bank said.

China plans to gradually ease controls on interest rates for big-value, long-term yuan-denominated deposits at commercial banks and decide deposit rates for small amounts of foreign currencies based on market supply and demand, Zhou said.

The government, which ended the Chinese yuan's link to the US dollar in July and repegged it to a basket of currencies, will keep the currency stable and let it move gradually under control, according to Zhou.

The country will ease the limits on qualified overseas institutions' investment in China's capital markets and allow select foreign companies to issue yuan-denominated bonds, Zhou said.

(Shanghai Daily November 22, 2005)