* China pledges to promote fair and open capital markets
* Cabinet promises increase foreign investment quotas
* Commitment to allow direct bond sales by local govts
* Promise to reduce restrictions on commodity derivatives
(Adds detail on policy announcement)
SHANGHAI, May 9 China pledged on 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 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 on Friday, the Securities Association of China
issued new rules governing IPOs.
While the government has previously discussed many of the
reforms mentioned by the cabinet, 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 cabinet 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 on Friday.
"We will persevere with market-based and rule of law-based
orientation and uphold open, equal, and fair market order," the
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 cabinet 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 opaque special-purpose vehicles.
On derivatives, the cabinet promised to develop more
varieties of commodity future and options, commodity indexes 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.
The State Council also promised to strengthen enforcement
against false disclosures by corporate bond issuers and insider
trading in the bond market.
The cabinet said it would work to develop the market for
private equity investment funds, private asset management plans
and venture capital funds, while cracking down on illegal
The State Council said it planned to allow some bonds to
trade on both the interbank bond market and stock exchanges.
Currently, the two markets are strictly segregated.
(Reporting by Gabriel Wildau; Editing by Richard Borsuk and