China's stock market regulator has reprimanded the investment industry for behaviour that could destabilise the stock market, according to a letter reproduced in the Chinese media.

In unusually blunt language, Zhang Jinghua reportedly said he was "very angry" at fund managers who had applied to buy shares they could not pay for.

Mr Zhang is the director of the fund management division at the China Securities and Regulatory Commission (CSRC).

The Chinese authorities are eager to introduce international norms into the country's stock market and banking system and clean up corporate governance before the arrival of foreign competition.

Getting tough

Mr Zhang's letter appears to be the latest move in a wide-ranging crackdown on a sector seen as critical for the success of market reforms and China's future economic growth.

China is opening the fund management industry to foreign stockbrokers, partly in the hope they will help drive the clean-up in corporate governance, analysts say.

Mr Zhang's letter was published in Caijing, the monthly edition of Securities Market Weekly, the Bloomberg news agency reported.

It reportedly criticises the investment firms for risking "upheavals" in the market.

The fund managers applied for a portion of $3.5bn of stock issued by Shenzhen Expressway Co.

23 of them applied for shares worth more than the value of their funds.

Not just talk

Last month, the CSRC imposed a record $61m fine on a leading stockbroker, Zhejiang Securities, for illegal share dealing.

It has hired prominent advisors from the Hong Kong Stock Exchange, including Laura Cha, who is spearheading anti-fraud investigations.

Her bureau has warned firms against breaching promises to investors by ploughing money raised on the stock market back into shares in other companies rather than using it to develop their own businesses.

The practice contributed to the rapid rise of China's stock markets but helped foster a gambling culture in which investors paid little attention to listed firms' fundamentals.

Banking on reform

The banking system is also targeted for reform.

Central bank governor Dai Xianglong unveiled plans last autumn to overhaul management practices at the four biggest state-owned banks ahead of partial privatisations.

The reform plan envisages foreign investors taking stakes in China's major banks by the middle of the decade.

UK-based Barclays Bank has held talks with one of the four, Bank of China, about a potential tie-up, according to a report in the Sunday Business newspaper.