China's structural deleveraging drive has met the target, but the risks of small banks' liquidity and property market still should be on guard, according to China's bank and insurance regulator on Monday.

“We have curbed the unregulated expansion of the banking and insurance sectors. The structural deleveraging drive has met our target. We have tamed shadow banking activities and overheated property market,” said Wang Zhaoxing, vice chairman of China Banking and Insurance Regulatory Commission. 

The vice chairman also revealed that the next step for the Chinese regulator is to strengthen measures to digest banks' bad assets and control the growth of bad loans. 

“We should stay alert on the liquidity risks among smaller banks. We will continue to watch out for the shadow banking activity in inter-bank investment, financing, and entrusted loans,” Wang stressed.

The vice chairman continued. “We will keep an eye on property sector risks, with a prudent standard for loan approvals when it comes to property development loans and individual mortgage lending.”

However, the tone of those comments has prompted new speculation about the pace or continuity of China's deleveraging campaign, especially when the economic slowdown is becoming more evident. 

The chatters started when China's credit growth surged to a record in January. Jimmy Zhu, chief strategist at Fullerton Market said the deleveraging drive would still be on the table but will not be a primary focus, adding that the market could expect more pro-growth signals from the upcoming National People's Congress. 

The market consensus is that China will not ease monetary policy or announce aggressive economic stimulus, but will give short-term liquidity boosts to calm the market. The tricky balance is to allow credit to flow into the private sector and make sure it doesn't become a speculative tool again. 

Overall, analysts say China is on a path to pursue fewer off-balance sheet banking activities and longer debt maturities.