There is a great urgency for China to develop an international financial centre of global significance within its own borders, lawmaker David Li says.

Mr Li was speaking as convenor of a focus group on financial services, one of four groups the Chief Executive established at an economic summit on "China's 11th 5-year Plan & the Development of Hong Kong" last September.

In its report to the Chief Executive today, the financial services focus group had six proposals and 80 specific recommendations. Chief among them was the need for Hong Kong to develop further as China's international financial centre of global significance.

"We may have had some success in attracting initial public offerings to our Stock Exchange in recent years. However, our Exchange is still relatively small. Furthermore, we are far behind other financial centres as a bond trading centre; as a currency futures centre; as a commodities futures centre; and more," Mr Li said.

"We believe that Hong Kong has the infrastructure, the transparent legal and regulatory environment, and the market depth to contribute in these areas for the benefit of the entire Mainland economy."

He stressed the window of opportunity will not last forever. "If we do not act now, inertia will set in, and the business will gravitate to established financial centres overseas."

The report offered a five-pronged strategy to pursue the nation's economic development and financial reform in a more significant manner. It includes:

* enhancing the presence of Hong Kong financial intermediaries in the Mainland to provide financial services on location;

* enhancing the outward mobility of Mainland investors, fund raisers and financial intermediaries;

* allowing financial instruments issued in Hong Kong to be marketed in the Mainland;

* enhancing the capability of Hong Kong's financial system in handling financial transactions denominated in renminbi; and

* strengthening financial infrastructural linkages between the Mainland and Hong Kong.

From a practical perspective, Mr Li said, Hong Kong can contribute to the Mainland's financial reform and development in three ways.

It can offer a range of financial services to the Mainland, using its established financial platform to help raise the efficiency of financial intermediation and support financial reform on the Mainland.

Second, Hong Kong can facilitate the Mainland's two-way cross-boundary fund flows, which, in turn, will help address the increasing concern about the external imbalances in the economy.

Third, Hong Kong is well positioned to serve as a testing ground for the renminbi's full convertibility.

"Hong Kong has already established itself as one of the leading securities markets in the world. We further propose a series of measures to broaden and deepen our securities market. We propose that high level liaison with the Mainland be strengthened to facilitate capital formation for Mainland enterprises," Mr Li said.

"As an international financial centre, we should take steps to make it easier for overseas issuers to list in Hong Kong. Efforts should also be made to establish a more flexible regulatory and operational infrastructure for local, Mainland and overseas financial intermediaries and investors."

On the development of a renminbi futures and options market, he proposed consolidating Hong Kong's lead in offshore renminbi, and expanding the range of non-deliverable renminbi products.

Mr Li noted that China is one of the world's largest consumers and suppliers of commodities, precious metals and other raw materials.

"There is an increasing need for efficient price discovery within our time zone. As a first step, we propose that an independent consultancy study be commissioned with a view to making concrete proposals for developing a commodities futures market in Hong Kong," he said.

Open up Mainland insurance market

Another chief recommendation was to establish an effective insurance market and asset management sector. These, he said, are essential for efficient risk management, financial intermediation, and wealth preservation within the Mainland.

"In this regard, we propose further liaison with the Mainland to expand the role of Hong Kong's insurance institutions on the Mainland," he said.

"We also propose that Hong Kong promote itself as a centre for international captive insurance; that we expand the opportunities for Hong Kong residents to become Mainland insurance practitioners; and that we foster the further development of the asset-management industry."