The latest move to allow cross-market stock investment in Shanghai and Hong Kong will further open up China's financial sector, but hurdles remain, delegates said at an ongoing international forum on Friday.

An announcement on Thursday to allow cross-market trading by mainland and Hong Kong investors on the Hong Kong and Shanghai stock exchanges was praised by global financiers at the ongoing Boao Forum for Asia 2014 Annual Conference.

However, they argued that China should be more open in how financial sectors are managed and seek better governance but less controls to shift the sector from a centrally directed system to one that is commercially based and financially sound.

More sunshine

Sunshine is the best disinfectant. It is indisputable to say that transparency with high-quality and reliable information is key for market growth, said Daniel L. Doctoroff, CEO of Bloomberg LP.

It will also be of social good as open information gives more confidence to investors who are likely to invest more, thus driving economic growth, Doctoroff added.

Risk management is top priority for financial institutions, and sometimes outsiders find it hard to know the quality of the assets of Chinese institutions, said Juan Inciarte, executive vice president of Banco Santander S.A.

One way to become more transparent is by conducting stress tests, delegates said.

Stress tests of Chinese financial institutions would let the market know better about the sector's conditions and increased confidence would bring more capital, said Gary Parr, deputy chairman of investment bank Lazard Ltd, citing the US practice.

The US Federal Reserve has stress tested the largest US banks every year since 2009, when the financial crisis plunged the country into the worst economic downturn since the Great Depression of the 1930s.

The annual checkup is designed to measure how well the industry would fare in another severe recession. It aims to ensure that banks could keep lending during a tough period.

Looming gray players

When discussing "shadow banking ", a non-traditional financial sector in the gray area of supervision considered to be a threat to China's economic well-being, delegates argued there is a need for close monito ring, better data collection and a stronger framework to identify and address problem institutions and market practice.

Chinese investors put money into trusts and wealth management products due to a lack of investment avenues in the country. The money pooled from the sale of these trust products is used to fund local government projects and industries such as mining .

Alarmist analysts warned that the shadow banking system is shaping up to be the country's "Lehman" or "Bear Stearns" moment, likely to trigger a financial crisis similar to the one in 2008 caused by the subprime mortgage crisis in the United States.

However, Chunhua Capital Group Chairman Hu Zuliu argued that shadow banking does not represent a systemic threat.

China does not have the same high interconnectivity among different regions and sectors, so the risk of an expansive crisis is low, Hu said.

UK Standard Life chairman Gerry Grimstone echoed Hu's argument and believes non-traditional lending can be complementary to traditional financial services if well regulated.

Noting that the growth of shadow banking was fuelled by regulated interest rates on both deposits and lending, Hu said that liberalizing rates and creating a bond market may help ease liquidity pressure.

Central bank's hand

With global liquidity changes speeding up following US and Europe quantitative easing , pressure for China's central bank to play a positive role in the global market is mounting.

Meanwhile, compared with the central banks of other developed countries, the People's Bank of China (PBoC) has to juggle different priorities and work collaboratively with other mini stries to push reform in the country.

"China's central bank has always taken unconventional monetary policies in the past, and that is necessary to facilitate domestic reform on all fronts in the transition period," said Zhou Xiaochuan, governor of PBoC.

Financial stability is the central banks' top priority, Zhou added.

Jiri Smejc, CEO of Home Credit Group Corp, called for proper supervision of commercial financial institutions instead of an over-tight grip, citing the challenges facing burgeoning Internet finance.

"We will do our homework as regulators, and give more respect for the market's choices," Zhou said.