CHINA will strengthen regulations on wealth management products to reduce financial risks, according to the top banking regulator's latest annual report.

"We will strengthen regulations on the structure and sales of wealth management products and keep monitoring where the money is channeled," the China Banking Regulatory Commission said in report published yesterday.

The so-called wealth management products carry higher interest returns than traditional deposits and are widely used by banks to finance projects such as real estate and infrastructure construction - projects that are difficult to get normal bank loans.

There were 7.1 trillion yuan (US$1.14 trillion) worth of outstanding wealth management products by the end of last year, the CBRC said. That marks a 13-time increase from the 500 billion yuan in 2007.

''Generally the individual investments in the instruments account for 62 percent of that total, while institutional investors and private banking customers account for 32 percent and 6 percent respectively,'' the CBRC said.

The defaults of such instruments last year have warned the CBRC of risks not only to the depositors who are major investors but also the nation's financial system as a whole.

The CBRC has unveiled new measures to rein in the rapidly-growing business by ordering lenders to keep separate accounts for each product and set aside capital as a buffer for potential losses.

Banks are also ordered to check the underlying assets of the wealth management products, and to keep such assets to 35 percent of the banks' total outstanding products, or 4 percent of their total assets, whichever is lower.

The CBRC's Shanghai office said on Tuesday that local lenders cannot sell third party-issued wealth management products at the same counters where deposits are taken.