China could rest easy with its abundant domestic capital as well as huge inflows of foreign investment, says Vincent Cheng, chairman of the Hongkong and Shanghai Banking Corporation Limited (HSBC), at the on-going Boao Forum for Asia (BFA) Annual Conference 2006.

Cheng said that the access to capital is not a challenge that China will face as it re-emerges as a major global power. "This country's high savings' rate will likely translate into an ever-larger pool of investible domestic capital," he said, adding that significant flows of foreign direct investment (FDI) will continue to seize opportunities offered by the Chinese government.

China needs to develop a robust banking system that can withstand economic fluctuations, in order to handle the growing capital from both domestic savings and inflows of FDI, he said. In addition, the system should be able to efficiently allocate capital and balance demand between competing users of credit.

The transition to a more efficient banking system will also invite development in legal infrastructure, Cheng said. "A new bankruptcy law --long in process -- is necessary to help restore debt-payment capacity among viable firms."

There are still challenges that China does face in the process of stepping up financial reforms, said Cheng. Those challenges include trying to avoid non-performing fund when the economy decelerates, building up more of a credit culture in domestic banks, implementing enhanced corporate governance practices at all levels of the banking sector and in other sectors as well.

Other challenges include further developing and deepening the country's equity and bond markets, and maintaining the appropriate pace of reform amid a transformation that is unprecedented in terms of sheer scale and in terms of complexity.

He said it is also important that China should learn from international experience and make the best use of it.

(Xinhua News Agency April 23, 2006)