(Yicai Global) June 15 -- China intends to further ease overseas access to its mainland A-shares because the country's capital market is "still not open enough," the vice chairman of the China Securities Regulatory Commission told Yicai Global.

"Foreign holdings of A-shares currently account for just 2 percent of the total market cap, so we will step up market opening efforts," Fang Xinghai said in an interview yesterday.

Initial results since the May 31 inclusion of mainland-traded shares in MSCI indexes have been pretty good, Fang said. Daily net inflows have more than doubled in the two weeks since Chinese stocks were added, he said.

A-shares joined the benchmarks mainly to attract overseas institutional investors because they are better at valuations and tend to holds stocks for longer periods, Fang said, adding that both of these promote market development.

Net inflows via the Hong Kong, Shanghai and Shenzhen stock connects surged to CNY3.61 billion between May 31 and June 11, compared with the daily average in the previous five months, data shows.

China's MSCI stocks represent just 5 percent of the A-share market's value, Fang said. The authorities are working to increase the inclusion factor to as much as 20 percent, which requires scaling up daily turnover through the two stock connect programs.

The regulator's main problem is to allow foreign institutional investors to manage risk using stock index futures and other derivative tools. They do not buy A-shares for short-term speculation, and they need risk management tools, Fang said.

The key to preventing financial risks is to simultaneously open the market and avoid asset bubbles, he said. If stock valuations are reasonable, foreign capital will flow in and out of the market in an orderly fashion, without causing significant risks.

China's financial system needs more reform and opening up, while the financial and legal framework also needs consolidating, Fang said. Shanghai can also do more to attract foreign professionals, he added.

Editor: Martyn Cartwright