The China Securities Regulatory Commission will encourage commercial banks to issue preferred stocks and corporate bonds to expand capitalization channels, an official of the commission said.

The measure is part of the response to the freeing up of interest rates in addition to diversifying bond products and interest rate derivatives.

The move toward market-based interest rates may bring short-lived challenges to the capital market, because of higher deposit interest rates and slower profit growth, Jia Wenqin, head of the accounting department at CSRC, was quoted as saying by Shanghai Securities News on Friday.

However, the reform is a gradual process, which will not cause great turbulence in the long-run, said Jia, because the capital market is strong enough to stand the impact of the move.

The market capitalization in Shanghai and Shenzhen stock exchanges stood at close to 24 trillion yuan ($3.9 trillion) with 137 million accounts, presenting sufficient capacity to cushion the risks.

Another reason is that many other interest rates, such as those for wealth management products and private lending, have already been liberalized, offering more choices for investors, said Jia.

Free interest rates will generate many benefits as well, such as enhancing the efficiency of capital utility, increasing the appeal of stocks and bonds to enterprises, and prompting companies to set the prices of bonds at a reasonable level, Jia added.