Undaunted by the worsening US financial crisis, partly blamed on regulatory shortcomings, Chinese regulators are pushing for more reform and speedy development of the nation's financial sector.

"It is time to lift excessive regulatory restrictions on private sector financing, which could help boost the dynamics of enterprises as well as improve the capital efficiency of the financial industry as a whole," said Wu Xiaoling, vice-chairwoman of the Financial and Economic Committee of the National People's Congress, at a financial forum in Beijing yesterday.

Wu said encouraging private companies to raise money directly from investors could also help reduce pressure on the government to relax its monetary policy, which is central to the fight against inflation.

Wu also called on regulators to pursue and encourage financial product innovation while keeping a balance against their potential risks.

Other economists and experts at the conference agreed.

"It is urgent for us to recognize the increasing importance of commercial credit, which can help improve financing efficiency to help companies grow," said Xu Xiaonian, a professor of economics and finance at the China Europe International Business School.

Fan Gang, director of the National Economic Research Institute, said reform of China's financial industry, although it faces pressure from uncertainties in the global market, should not slow down.

"Much of the problem behind the US financial crisis stemmed from the excessive complexity of financial derivatives," Fan said. But China is facing challenges of an entirely different nature, he said. "The Chinese financial market, still at the initial stage of development, lacks effective financial tools, which has hampered the sustainable development of the market," he said.

Fan called on decision-makers to further relax regulations to assist development of a multi-layered financial market.

"An overly tight regulatory system would not minimize risk, but would instead force us to passively shoulder the risks passed on from foreign markets," Fan said.

Talking about reform in the banking sector, Fan also noted that the interest rate should be dictated by market forces to promote competition that could lead to innovation.

"We should make greater efforts to let market forces dictate the capital costs and introduce competition to China's commercial banks in the hope of strengthening their capacity to withstand risks in the global market."

Economists at the conference also emphasized the importance of expanding domestic consumption to improve the country's economic structure, especially at a time when global uncertainties are depressing external demand.

Wu Xiaoling and other officials agreed that fiscal policies should be further relaxed to help stimulate domestic demand and encourage domestic consumption to offset declining external demand triggered by global economic uncertainties.

The latest figures show that fixed-asset investment remains the major contributor to China's GDP growth. In 2007, an increase in fixed-asset investment accounted for 50 percent of GDP growth, while household consumption contributed 35 percent. Economists said this proportion of household consumption in GDP growth is about half that in the United States.

Economists at the conference said it was important to expedite development of the service industry, which has created more than 30 percent of the nation's total job opportunities, compared with 27 percent by the manufacturing industry.

But they warned Chinese financial institutions of potential risks in overseas mergers and acquisitions at a time when the ripple effect of the US financial crisis is yet to be fully evaluated.