A leading investment strategist and adviser to Li Keqiang has revealed the extent of the Chinese premier's ambition for reform of the mainland financial sector.

His comments show how anxious China is to drive institutional investment offshore and the level of competition that is likely to occur domestically in the next 18 months.

Amongst other major changes, foreign insurers in China will be released from current geographical constraints and given the freedom to do business across the country.

Richard Surrency, managing director of capital strategy at Singapore-based Algebris Investments (Asia) is one of several international investment chiefs on a panel of experts advising Li Keqiang on the development of China's capital markets.

"The key theme is private equity," Surrency told AsianInvestor. "China doesn't need any more foreign investment. They have made clear they don't need another dollar of foreign investment, because the net gain for them is inconsequential."

Premier Li's chief concerns in reforming the Chinese economy are over-production and a domestic banking system "that is 10 years behind in terms of proper functioning," says Surrency. "Shadow banking is a direct result of a banking system that isn't doing its job in allocating capital."

In the past, he says the Chinese authorities would have denied any of this was a problem, but now Li is intent on highlighting the issues, to force the state-owned banks and insurers to sort themselves out or face the consequences in the form of foreign competition.

The insurance market also faces a shake-up, with Li having said to the domestic insurers, "I've given you the chance to grow your business free of foreign competition. If you haven't got your business together by now, watch out because major foreign insurers will soon be given the right to compete directly with you," said Surrency.

Foreign insurers are currently restricted to operating in quasi-regional jurisdictions, but Surrency says: "They are now going to have all of China to play with, in the next year to 18 months."

This is part of the wider strategy of re-centralisation that is taking place. Surrency says: "I have not seen anything like this. We used to hear regional heads of insurance and banking boast how they had autonomy from Beijing, but those days are over. Now before any decision is made they will say they have to check with Beijing first. Control is returning to Beijing and the speed at which it has occurred is unprecedented."

Surrency predicts there will be a 10-fold increase in capital flowing overseas in the next two years: "Premier Li is now saying to the SOEs and entrepreneurs, if you want to take your business offshore and you have a robust business plan that can be leveraged in overseas markets, and then bring that expertise back to China, then he will authorise it."

One of the vehicles being used to channel Chinese private equity money overseas is China Minsheng International (CMI), whose board includes Romano Prodi, the former Italian prime minister and president of the European Commission; Dominique de Villepin, a former French prime minister; and economist and Nobel laureate Robert Engle. CMI is chiefly funded by Chinese entrepreneurs and amongst their investments is a large greenfield site in London's Docklands area, which is planned as a hub for Chinese businesses wanting to set up a London base.

Another high-profile example is Anbang Insurance Group's acquisition of New York's prestigious Waldorf Astoria Hotel for $1.95 billion, making it the largest US real estate purchase by a Chinese institution. "Expect more private equity opportunities like this originating from Chinese vehicles," says Surrency, "the future volume will dwarf anything that has taken place before."