China will launch a "strategic emerging industry board" next year to better serve domestic high-growth and innovative enterprises, a senior official with the country's securities watchdog said Friday.

"The existing ChiNext startup board is not enough to meet the financing needs of emerging companies as the Chinese economy continues to grow," said Fang Xinghai, vice director of the China Securities Regulatory Commission (CSRC).

The ChiNext is a NASDAQ-style board of the Shenzhen Stock Exchange that tracks growth enterprises. China is witnessing a surge in such enterprises as the government encourages entrepreneurship and innovation.

The creation of the board will diversify financing channels, lower financing costs and help prevent financing risks, Fang said.

"When these companies access financing in the market, they rely less on bank loans. This prevents a concentration of financial risk in the banking system," he added.

The State Council, China's cabinet, announced Wednesday that it supports the development of direct financing to reduce production costs for enterprises.

The CSRC and the Shanghai Stock Exchange are discussing the general mechanism and specific rules of the new board to make sure it can accommodate the ChiNext Index. Competition between the two will be "moderate" according to Huo Da, director of CSRC's market department.

Establishment of the new board will see progress next year as China works on transforming its IPO approval system into one based on registration, Huo said. Under current rules, companies have to wait a long time for the CSRC's approval before listing.

Fang said that China is likely to launch a stock connect scheme between the Shenzhen and Hong Kong bourses next year. The stock connect schemes allow investors to trade on both bourses under a quota and are seen as moves toward a more open capital market on the Chinese mainland.

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