BEIJING - China will further amend the rules for initial public offerings (IPO) and cut red tape involved in the approval process in a move to substantially increase the proportion of direct financing, the country's top securities regulator said on Monday.

"We will further simplify the approval process and make the IPO mechanism more efficient and market-driven," said Zhu Congjiu, assistant chairman of the China Securities Regulatory Commission (CSRC).

Zhu, who is also a member of the National Committee of the Chinese People's Political Consultative Conference was speaking at a news briefing in Beijing.

The securities regulator is also considering the introduction of new IPO rules such as allowing original shareholders to sell their shares when a company issues an IPO and giving securities underwriters the right to choose investors and allocate new shares to them, he said.

At present, Chinese companies can only sell new shares and original shareholders are subject to lock-up periods. Securities underwriters can recommend institutional investors to participate in the new share subscription during the IPO process but they have no right to allocate shares to them.

The regulator will also shorten the approval process of corporate bond issuance to boost the country's fixed income market, whose development has lagged behind the country's stock market, Zhu said.

Premier Wen Jiabao said during his work report on Saturday that the government will work to raise the proportion of direct financing and to boost the roles of financial products such as stocks, bonds and funds to meet the increasing demand from domestic investors.

China is also preparing to launch the so-called international board in Shanghai which will allow overseas companies to raise fund in the A-share market.

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The country has become the world's largest IPO market, with companies raising a total of $72 billion in 2010, according to the data analysis firm Dealogic.

But the government's plan to substantially expand the country's capital market has prompted concern that a flood of new IPOs could further dampen share prices.

The Shanghai Composite Index declined 14 percent in 2010, making it the worst performer among benchmark indices in the world's 10 biggest markets.

While encouraging more companies to raise funds in the stock and bond markets, Zhu said the policymakers need to ensure that the supply of capital is abundant in order to avoid a potential market crash caused by a substantial increase in new IPOs.

"Insurance funds, pension funds and corporate annuities should all be encouraged to enter the stock market," he said.