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China clamping down on vast shadow banking sector

Broad effort to regulate off-books products could choke weak banks' funding

BEIJING/SHANGHAI -- Chinese regulators are moving to tighten controls on the murky parallel finance sector that channels money into high-risk investments, but some speculate that the rules could be loosened again if they bite too hard.

This effort to rein in the country's shadow banking sector, which poses a growing risk to the financial system's stability in the world's second-largest economy, has begun by casting a broad net of regulation over so-called wealth management products. Banks and other issuers sell these to individuals and corporations to raise funds for off-balance-sheet investments.

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