SHANGHAI (Reuters) - China is in a new phase of its campaign to cut debt, focusing on rules to shrink a bloated financial sector that has grown rapidly as product innovation outpaced regulatory oversight, a senior researcher at the Shanghai Stock Exchange said.
The financial sector has threatened growth by crowding out resources in the real economy, while the ballooning shadow banking business has boosted money supply and created expectations of asset price inflation, said Shi Donghui, director of the Shanghai exchange's Capital Market Institute.
"China's bloated financial sector ... has siphoned talents and other resources from the real economy, and has reached a tipping point at which it starts to slow, rather than stimulate growth," Shi told a CFA annual conference in Shanghai on Sunday.
"Having stabilised debt growth on a macro level, the focus of the next phase is to toughen supervision over leverage on a micro level."
China has proposed new rules to better regulate its asset management industry, the key contributor to the shadow banking expansion. It is also tightening banks' liquidity management and cracking down on micro-lending and low-rated insurers.