Despite such reforms, Shang cautioned that much work remains to be done to upgrade capital markets.

"The foundation of the market is weak, the risk controls are not there yet," Shang said. Among the CSRC top priorities, he said, is improving the legal environment and boosting investor education.

The CSRC has also begun making it much easier for domestic companies to issue corporate bonds and preparations are underway to allow trading in financial derivatives.

Targeting excess liquidity

"China is still facing the problem of over-liquidity. The trade surplus is still an issue and the foreign exchange reserve is still growing," Fan Gang, Director of National Economic Research Institute under the China Reform Foundation, told reporters on the sidelines of a session at the World Economic Forum.

Zhang Xiaoqiang, Vice Chairman of the National Development and Reform Commission (NDRC), revealed at the forum, that as of the end of July, China's foreign exchange reserve approached $1.4 trillion. Statistics of the General Administration of Customs show that the trade surplus in August reached $24. 97 billion, the second highest in history after a figure of $26.91 billion in June.

"This policy (the recent raising of reserve requirement ratio) is basically tackling these fundamental problems, and is not targeting a certain sector or a certain indicator," answered Fan, who is also a member of the central bank's monetary policy committee, when being asked whether the reserve ratio hike is targeting real estate and stock markets or the rising consumer price index, which grew 6.5 percent in August.

"It's not necessary for the policy to have immediate impact, because it just tries to keep the money supply under certain level," he said.

Given current inflation, Fan said, if annual average growth of the money supply can be at the target level--about 16 percent or 17 percent--the money supply would be under management. Looking at the latest statistics released by the central bank, in August the broad money supply (M2) grew 18.09 percent year on year, 0.39 percentage points slower than that of July.

Fan also said the recent issuance of 600 billion yuan ($80 billion) of special bonds by the Ministry of Finance was equivalent to the central bank's sterilization operations, which can also soak up liquidity from the banking system. "I don't think it (issuance of special bonds) will create new issues," Fan added.

Resolving tensions of growth

China's breathtaking economic growth has also created tensions, with environmental protection and reduction in energy consumption being the most important issues. These were highlighted at many panel discussions related to China during the World Economic Forum's Dalian meeting.

China has maintained fast economic growth during the past 30 years, Stephen Roach, Chairman of the Morgan Stanley Asia, told Xinhua. The question now is whether China can still follow the same growth pattern. The answer for Roach is "No." China should resolve severe environmental pollution and energy over-consumption, he said.

"To tackle with these problems, China has issued or is making policies, but from making to implementing the policies, there should be a process," said Fan Gang. "It's a period many developing countries undergo."

Bert Hofman, Chief of Economics Unit and Lead Economist of the World Bank Office Beijing, said, China should "shift its growth model from heavy industry to services and high value-added industries."

Stephen Roach also believed that China is undergoing an unavoidable period of trials, after which its service industry shall stride onto a new stage.

"Compared with other countries, the Chinese Government has realized these earlier and has begun solving them," Fan Gang said.

According to NDRC Vice Chairman Zhang, developing and using clean coal on a large scale is a top priority in China, where it remains the primary energy source. The government is likely to increase investment in hydropower and nuclear energy in the future.

Zhang added that he expects the government to develop more market-based incentives to promote greater efficiency both at the provincial level and among consumers, who might be persuaded through tax perks to buy more-efficient cars.

"We must set up a framework to provide incentives to energy saving and clean technology," said Zhang.