China strengthened efforts to prevent and crack down on illegal fundraising creeping into sectors such as peer-to-peer lending and crowdfunding, Liu Zhangjun, an official at the China Banking Regulatory Commission, said.

With the rapid development of Internet finance, illegal fundraising is moving from offline to online, Liu, director-general of a task force established to tackle the problem, told a news conference on Monday. Many illegal investment and financing advertisements are spreading quickly and widely via online channels including websites, Internet forums, micro blogs and e-mail.

A regulatory vacuum has blurred legal boundaries for Internet financing and some people are exploiting that to raise funds illegally, he said.

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The news conference was jointly held by the commission, the Supreme People's Court, the Supreme People's Procuratorate and the Ministry of Public Security.

The government is tightening regulation of new forms of financing and promoting their standardization. China established an inter-ministry task force to tackle the problem and the CBRC is leading research on how to regulate peer-to-peer lending.

We will encourage the development and innovation of P2P lending platforms as a new form of financing, Liu said. At the same time, we will make sure that the public understands clearly that the platforms are just intermediaries. They are forbidden from providing loan guarantees or building pools of capital.

To strengthen public awareness of the risks, the task force will launch an investor education campaign in May followed by publicity campaigns against suspected illegal fundraising advertisements across China.

Financial innovations and risks sit on each end of a seesaw, Yang Tao, a researcher at the Institute of Finance and Banking at the Chinese Academy of Social Sciences, said. Although it's important to strike a balance, we have to pay closer attention to the risk, for it has significantly increased recently.

Yang suggested the government make further and clearer definitions to the risk and nature of the enterprises that are under the cover of Internet lending. The central government will collect and screen information to reinforce efforts to monitor and flag suspected illegal fundraising, he said.

Some provincial governments are developing platforms to monitor illegal fund-raising and manage the risk of fraud.

The number of illegal fund-raising cases in 2013 - measured by total funds raised and participants - was the second-highest on record. Police solved more than 3,700 cases nationwide and recovered 6.4 billion yuan ($1.04 billion) in economic losses.

Illegal fund-raising has spread to over 87 percent of cities and prefectures in 31 provinces, autonomous regions and municipalities. Recent cases are concentrated in central and eastern provinces, with an increasing number being cross-provincial and thus having a huge impact.

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