Many domestic experts said one of the key lessons to draw from the US subprime crisis was that regulation should be further strengthened.

In view of the latest developments in international financial regulation, "we should strike a better balance between government regulation and the self-discipline of the financial market," noted Gong Minghua, a researcher from China Banking Regulatory Commission.

Admittedly, China now boasts the most profitable lenders in the world after market-oriented reforms transformed State-owned banks into commercial lenders. But domestic financial market and financial institutions remain unable to meet the country's growing demand for financial services to fuel its economic growth.

For instance, the government has spearheaded a national campaign to revive the rural economy. But by the end of last year, as much as 7 percent of villages and towns lacked any financial outlets offering simple, low-cost financial services to boost local economic growth and raise farmers' living standards.

Therefore, "while emphasizing the importance of market self-discipline, we must overcome such defects in the market with effective regulation", added Gong.

Challenging the argument that the current financial crisis is the result of failed regulation, Didier Cossin, a professor of banking and finance from Switzerland's IMD business school, claimed that the crisis is about a culture of greed rather than a lack of regulation.

He said that the nationalization of a triple-A insurance company is more telling than the fall of a leading investment bank like Lehman Brothers.

"Everyone knows that investment banking is a risky business," said Cossin. The fact that AIG was highly regulated but still failed points to a culture of greed in the financial sector.

As to how long the current financial crisis will last, the professor refused to forecast but insisted that the cost of credit will rise.

"And the long-term consequence of the crisis may be the end of the free-market way of thinking," added Cossin.

Chinese policymakers are trying to use these experiences to minimize risks and avoid potential catastrophes that may be encountered during the process of financial innovation. But it seems that the complexities and consequences of the global financial crisis will make the learning curve long and lead to conclusions that may even contradict each other.

(China Daily September 24, 2008)