Nation should focus on key risk points, central bank warns

China should redouble its efforts to regulate key risk points in the financial sector to ensure financial stability, the central bank said on Tuesday.

While risks in the nation's financial sector are manageable now, the central bank will elevate the importance of prevention, the People's Bank of China said in its annual China Financial Stability Report released on Tuesday.

The bank and other financial regulatory bodies will work to fend off risks involved in shadow banking, real estate financing, local government financing platforms, internet financing and illegal fundraising activities, the report said.

Regulators will increase supervision over outbound investment and prevent shocks from external challenges, it said.

Recent improvements in economic data provide a solid foundation for the government to enhance its control of financial risks, said Shen Jianguang, chief economist of Mizuho Securities Asia Limited.

Since China's economy finished strong in the first quarter, with 6.9 percent year-on-year growth, many experts believe the second quarter, which ended in June, is also likely to show high-rate growth, partly due to a recovery in the manufacturing sector.

Investment and a relatively loose macro environment have boosted the economy but also led to an accumulation of financial risks in sectors pumping up the economy. The pileup of debt has become a challenge in recent years.

"Risk points in the financial sector have not changed much compared with the same period last year. They have always been there. Strong economic growth means regulators have more space to deal with risks," said Zhao Qingming, chief economist at the research institute of the China Financial Futures Exchange.

He said the risk level is not striking, but it is crucial to ensure that it will not threaten overall financial stability.

"The key is to implement financial reforms and to make sure regulatory rules can be rolled out in the right places," he said.

Regulatory bodies have introduced a slew of measures to regulate risk points exposed in the financial sector since the start of this year.

The central bank has improved its regulation of shadow banking, often outside the government's regulatory purview, by improving the Macro Prudential Assessment framework.

By including banks' off-the-balance-sheet wealth management products in its examination of broad credit, the central bank is able to curb risks brought by credit issued in restricted areas.

Some improvements have been made, according to a report released by Moody's Investors Service on Tuesday.

Moody's revised its outlook for banks in the Asia-Pacific region to stable from negative, as banking risks stabilized due to stable or improved operating conditions. China was a key factor in the increase of stable outlooks.