Shang Fulin, head of China's securities market watchdog, said that China's capital market has gone through fundamental changes, but still faces "a bumpy road ahead."

"China's capital market, fueled by its booming economy, has made huge strides in the past few years," Shang, chairman of China Securities Regulatory Commission, said at the Inaugural Annual Meeting of the New Champions held by the World Economic Forum in Dalian from Sept. 6 to 8.

By the end of August, the number of listed companies in domestic stock market exceeded 1,500, notching up a total market value of 23 trillion yuan (3 trillion U.S. dollars). In the past years, China's securities industry has gone through reforms, industry restructuring, and stricter supervision.

China's capital market has transformed from excessive speculation by individual investment to one with better involvement of institutional investors, which lend greater stability to the market, Shang said, noting that institutions now hold 44 percent of the shares in circulation.

While resolving the problems which affected the sound development of the stock market, the fund-raising environment has turned better, Shang said.

Statistic show that more than 506.6 billion yuan (68 billion U. S. dollars) has been raised from the domestic securities market since the split-share reform, which made massive fixed shares tradable, was finished in the second half of last year. The figure was 107 billion yuan more than the total in the five years before the reform.

The bullish stock market has indeed surprised many. Fred Zuliu Hu, managing director of the Goldman Sachs (Asia), said economic strength partly explains the market's ongoing performance, and the split-share reform initiated in the 2005 is also an essential factor revitalizing the market.

"Chinese corporate profitability is at record high, so investor confidence has come back," Hu said, adding that China needs a more robust domestic venture capital market and private equity industry to help smaller local companies obtain capital.

But the robust market was not dearth of looming shadows. Hot- money has kept flowing in through illegal channels and insider trading is among some severe problems in the securities sector.

"The foundation of the market is still weak, and the self- adjustment system to prevent and hedge risks is not there yet," Shang said, expressing the belief that the market will develop and play its due role in building a prosperous society with the concerted efforts of all market entities.

The commission will continue to improve legal environment, boost investor education and develop more finance derivatives to diversify investor options, the chairman said.