That is the message from 100 senior executives attending a roundtable on Monday organized by Economist Conferences in Shanghai.

Howard Chao, partner of the US-based law firm O'Melveny & Myers said: "The domestic financial markets will be at the center of the next wave of reform and investment in China."

He maintained that proper development of this sector will be crucial not only for the soundness of China's financial system, but also for China to attain the next level of overall economic development.

The past few years have seen rapid developments and a new focus by the government in certain areas, though many questions continue to be deferred or embraced in theory but not in practice, roundtable participants said.

To achieve a healthy financial system to sustain the nation's continued growth, they appeal for more reform and openness of both the authority and domestic players.

High on the agenda was how to achieve a clean bill of health for its banking sector, which is struggling with a high ratio of non-performing loans.

Nicholas Lardy, a senior fellow at the Washington-based Brookings Institution, a centrist think-tank, hailed the Chinese Government's "positive practices to solve the problem" by setting up asset management companies to absorb some of the loans.

However, there still remains a large percentage on the balance sheets.

Analysts say more non-performing loans continue to be generated because the underlying credit evaluation process remains fundamentally unchanged.

International investors are also looking at China's equity market, which arguably has potentially high rates of return, but they are taking a reluctant approach.

They maintain that although China's equity markets have offered the possibility of funding and witnessed an impressive rate of listings, they still fail to inspire confidence.

Market manipulations, accounting fraud, governance issues, accusations and rumours abound, keeping the sophisticated international investors away.

"I don't think corporate governance is improved by getting the company listed," Lardy said.

Executives maintain that the capital markets remain underdeveloped and need more regulation. Competition in the sector is a recent phenomenon with China's entry into the World Trade Organization (WTO) driving the urgent need for reform.

(China Daily June 25, 2002)