The overheating of the Chinese stock market is a structural problem that will be resolved by developing more financial products and cracking down on illegal activities, a Chinese securities regulatory official said on Thursday.
Hu Bing, deputy director-general of the market supervision department at the China Securities Regulatory Commission, said at a conference in New York that authorities are seeking to roll out more products to broaden investors' options, such as real estate investment trusts, or REITs, as well as listed infrastructure funds.
Other eventual offerings will include derivatives products such as stock-index futures and warrants.
These products will be launched "when conditions are ready," Hu said at a China Investment Forum sponsored by Merrill Lynch and Institutional Investor.
He said he couldn't provide a clearer timeline for when those products would be ready.
Hu acknowledged a "liquidity surplus problem" that is contributing to the overheating of the Chinese stock market and noted that hot-money inflows coming in through illegal channels are exacerbating the problem.
Tackling the liquidity issue is a long-term project that "cannot be resolved just by [raising] the interest rate," Hu said. "So the structural problem has to be resolved using structural measures."
Earlier this week, the Chinese government tripled its stamp tax on stock trades in an effort to rein in the equity market. The Shanghai Composite Index more than doubled last year and is up about 50 percent so far this year.
Hu said China's capital markets are still young and face a "golden opportunity" to develop their depth and breadth.
The majority of individual investors rely on rumors or inside information to make their decisions, leading to speculative gains in stocks, he said.
Hu said that authorities are stepping up efforts to crack down on insider trading, "but because this is a transitioning society in an emerging market, it will take a long time."
Separately, China will soon give the nod to insurers to invest in overseas equities as part of efforts to channel more excess domestic cash abroad in search for higher returns, state media said yesterday.
"The long-awaited new rules on insurers' overseas investment will be issued in one or two months," said Sun Jianyong, an official of the China Insurance Regulatory Commission, the industry watchdog, in a report in the China Daily.
Sun said at a forum in Beijing that the regulator would initially allow insurers to invest in mature stock markets such as London and New York this year, the report said.
Under the draft rules published by the regulator in December, insurers will be allowed to invest up to 15 percent of their total assets in money market and fixed-return products, stocks, options, mutual funds and derivatives abroad.
As the industry's total assets stood at 1.97 trillion yuan (US$258 billion) at the end of last year, around 300 billion yuan can be invested overseas, the report said.
Sun said there would be progress this year toward letting insurers set up fund management companies as well after they were allowed to invest in infrastructure projects and buy stakes in commercial banks.
China has taken a number of measures recently to ease controls on domestic funds that go abroad in an effort to relieve the excess liquidity in its financial system.