BEIJING - China will "actively and steadily" deleverage and tackle financial risks, sources said on Monday, underscoring concerted efforts by Beijing to defuse a potentially damaging economic fallout from years of cheap money and loose lending practices.

The sources cited the country's five-year plan (2016-2020) for the financial sector which has been a major focus for regulators as they look to rein in shadow banking activity, improve transparency in funding sources and generally reduce a dangerous build-up of debt across the economy.

China will boost the role of price-based monetary policy targets with interest rates as core, according to two sources with knowledge of the matter and a document seen by Reuters.

The sources were quoting the plan jointly issued by the People's Bank of China, financial regulators and other government agencies.

"China must actively and steadily deleverage, adjust the overall floodgate of money supply and prevent the rapid increase in the macro leverage ratio," the five-year plan said.

The government is in the third year of a regulatory crackdown on riskier lending practices, which has slowly pushed up borrowing costs while reducing these alternative and murkier funding sources for companies such as shadow banking.

China's overall debt level rose 2.7 percentage points in 2017 to 250.3 percent of gross domestic product due to the impact from China's supply-side reforms, improving economy and corporate profits, the central bank has said.

Beijing will also actively and steadily tackle financial risks in the short- and medium-term, the sources said, adding that regulators will increase oversight of the shadow banking sector and various online financial businesses.

China will significantly boost the share of direct financing in its financial system, especially equity financing, the sources said.

The outstanding value of China's bond market is expected to match its gross domestic product by the end of 2020, they said.

China will continue to promote the process of yuan internationalisation, expecting cross-border yuan payments to account for over a third of all cross-border payments by 2020, the sources said.

The central bank has yet to respond to a Reuters request for comment.

Reuters