(Yicai Global) Nov. 17 -- China's macro-leverage ratio, which refers to the ratio of total debt to national gross domestic product, has risen rapidly over the past decade and most of the risks are concentrated in the banking sector, the governor of the People's Bank of China said today.

These risks need to be well managed, Yi Gang said in an article posted on the central bank’s WeChat account. We can reduce the excessive dependence on financing through banks by developing direct financing, which borrows funds directly from financial markets and circumvents fee-charging intermediaries such as banks, he added.

In this way we can keep the financial industry's support for the real economy unchanged while at the same time stabilizing the leverage ratio, Yi said.

As China's macro-leverage ratio is still likely to rise, it is necessary to promote direct financing through further reform and opening up, he added.

It is also important to accelerate the reform of stock exchanges to a registration-based system, as opposed to an approval-based system which is much slower, and to improve the transparency of the capital markets, Yi said. This will enable investors to make decisions on their own and to take measured risks.

The legal system for the securities market, financial services tribunal and information disclosure system needs to be improved, Yi wrote. It is important to develop a multi-layered capital market and to support the development of private equity investment to allow market mechanisms to play their full role and encourage innovative development.

The demands of wealth management, elderly care and health insurance are huge in China at present and there is great potential in these markets, Yi said.

Finance is a franchised industry, which means licensing is essential for good operations, he added. The PBOC will not tolerate illegal fund-raising, unlawful lending and financial fraud.

Looking at foreign countries which have a long period of development and rich experience, greater openness will enable domestic industries to provide better financial services, he added.

Editor: Kim Taylor