The government should pluck up the courage to regulate interbank trading and wealth management services, Liu Shiyu, deputy governor of the People's Bank of China suggested yesterday at the Tsinghua PBCSF Global Finance Forum.

"If we do nothing, investors, including the public, will be easily induced to blindly pursue lucrative short-term yields," Liu warned.

Compared with the very small interest rates on bank deposits, an individual investor can expect returns of around 8 percent from wealth management products (WMPs).

But, as Liu pointed out, the rates can reach 14 percent mark only after the products have been repackaged by the banks into the real economy. He expressed concerns that these financial behaviors contribute nothing to productivity and push up costs for the real economy. Even worse, they could force the country's financial system into a vicious cycle of short-term gambling.

Liu also argued that China needs to build "aircraft-carrier-size" investment banking firms that engage in investment banking, securities, insurance and other financial services.

"Without several 'pillar financial institutions' that exert dominant market influence, we can hardly say a country's financial system is satisfactory," he said.

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