An outstanding problem facing China's financial system lies in the country favoring the development of capital-intensive industries, such as manufacturing and infrastructure, which possess the advantage of huge fixed assets to attract loans, at the expense of the high-tech and service sectors. Thus, a package of sweeping macro and structural reforms should be introduced to promote the unblocked and impartial flow of the country's huge fluidity to different sectors, especially those that have difficulty accessing loans.

A financial transformation that is proportionate to the country's ongoing economic transformation will help its financial sector gain greater vitality and efficiency. The adoption of a capitalization strategy favoring scientific and technological innovation will result in the financial sector playing a bigger role in the real economy. As a way to establish a pro-innovation financial system, the nation should increase its fiscal input, including input into research and development, and establish a risk fund for industrial start-ups, as well as high-tech funds and market financing, in an bid to offer greater financial support to the development of an innovative economy.

China should also set up a banking system to serve small and medium-sized enterprises, a practice that has proved successful in countries such as France, Canada and South Korea that have established government-funded financial bodies to provide small businesses with loans. The creation of such banks in China will give domestic fund-lacking enterprises greater access to loans.

China has so far acquired more than 30 percent of the world's total reserve assets. By the end of June 2011, its foreign reserves amounted to $3.19 trillion, an increase of 30.3 percent year-on-year. This was triple that of Japan, the world's second largest reserve holder, and was almost as much as Germany's full-year GDP, which is the fourth largest economy in the world. However, the country's investment into long-term US government bonds has a relatively low return ratio of 3 to 5 percent. In comparison, foreign direct investment in China has gained an annual average return of 20 percent. Such a huge disparity makes it necessary for China to review the current management model of its enormous foreign financial assets.

China should try to shift its investment preference from the government debt of developed countries to their stocks and shares in a bid to boost the wealth-remaking capabilities of its reserve assets and to facilitate the development and expansion of its real economy overseas.

The author is an economist with the State Information Center.