China should allow financial institutions, irrespective of national origin, to serve Chinese investors, establish a more robust domestic corporate bond market and scrap the registration system for public equity offerings in the wake of the recent stock market turbulence, former US Treasury Secretary Henry Paulson said.

Paulson made the suggestion in an article published on the website of the UK-based Financial Times, in which he noted China would benefit if it allowed participants, including top-notch foreign institutional investors, investment banks and brokers, to compete on equal footing.

Currently, foreign institutional investors and brokers have to set up joint ventures with domestic players to do businesses in China.

Paulson argued that the opening-up of other parts of the financial market will also be beneficial for the Chinese economy, for instance the corporate bond market so that investors could diversify their assets from the single choice of the stock market.

"Investors also need to be able to diversify their assets. This is one of the reasons Beijing should establish a more robust domestic corporate bond market, and allow the Chinese public to invest more of their assets in foreign securities," he said.

As for public equity offerings, Paulson suggested letting the market be the decisive force.

He said in the article that China should move away from the registration system of public equity offerings, and the government should change its role as a gatekeeper. Instead, they have to set appropriately high standards and criteria for companies seeking to go public.

China has reformed by following Deng Xiaoping's dictum to "cross the river by feeling for stones" in the past 40 year, he said in the article, and "it is time to more boldly cross the river to reach the other shore."

Paulson is a veteran China watcher and author of Dealing with China. He was a former Goldman Sachs CEO before becoming US Treasury Secretary in 2006.