BEIJING - China will encourage listed commercial banks to trade bonds on the stock exchanges in a move to substantially increase the proportion of direct financing, the country's top securities regulator said on Friday.

"We will continue to reform the bond market, substantially boost the bond trading scale, and actively encourage listed commercial banks to trade bonds on the stock exchanges," said Shang Fulin, chairman of the China Securities Regulatory Commission (CSRC).

"In fact the current arrangements have limited the development of the domestic bond market," he said. "What we need to do is to let the stock exchanges play a bigger role."

Shang made the remarks at the annual work conference of securities regulators that concluded on Friday in Beijing.

Banks remains the dominant source of funding in China and bank loans were more than twice the size of debt securities at the end of 2009. Therefore the financial risks are highly concentrated in the country's banking sector.

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Unlike the developed economies where the bond market is usually larger than the stock market, the development of corporate bonds and other fixed-income products in China has lagged behind the stock market, unable to satisfy the needs of investors with different risk preferences.

In recent years the regulator has stepped up efforts to develop the domestic bond market and it resumed bond trading by banks on the stock exchanges in October. Trading was suspended in 1997 to prevent illegal capital flows into the stock market.

Shang also vowed to simplify the approval process of corporate bond issuance to make it easier for small and medium-sized enterprises to raise funds.

In 2010, the regulator approved bond issuances by 25 companies, raising a total of 60.3 billion yuan ($9.14 billion). The scale of bond trading on the Shanghai and Shenzhen markets grew by 88.6 percent year-on-year, according to the CSRC.

Shang also said the regulator will further open the domestic capital market to overseas investors and will continue to encourage subsidiaries of domestic securities firms and fund companies in Hong Kong to raise yuan-denominated funds and invest in the mainland market.

In 2010, Chinese companies raised a total of 35.4 billion yuan in the overseas capital markets, according to CSRC.

Shang said the regulator will steadily push forward the process of overseas companies raising capital in the A-share market. However, he did not reveal a specific timetable for the launch of the international board in Shanghai.