SHANGHAI (Reuters – China Wednesday released a draft of its law on financial stability to strengthen safety nets in order to protect the country’s second-largest economy from systemic financial risk.

China is creating a fund for financial stability protection to strengthen its capacity to deal with financial risk. It will also establish an inter-agency system to detect and dispose of risks.

The People’s Bank of China (PBOC), stated in a statement posted on their website that “In the face of complicated economic and financial circumstances at home and abroad it is necessary to proactively establish an authoritative and efficient system for preventing, resolution financial risks and preparing for rainy day.”

China’s economy is slowing due to a revival in COVID-19, a sluggish real estate market and the impact of the Ukraine crisis. These factors are straining local governments already overly-indebted.

China’s new financial stability fund would be funded through the financial institutions and financial infrastructure providers. It will be used for major systemic threats. According to the draft law, the PBOC could also lend liquidity support to this fund if necessary.

However, financial institutions must first save themselves and their largest shareholders before seeking outside help to minimize reliance upon public money.

The risk-disposal mechanism that will be led by China’s State Council finance committee, also known as cabinet, places more responsibility on local governments and financial regulators in order to prevent financial risks.

According to the PBOC, financial risks were largely caused by past financial mismanagement of financial institutions as well as capital misuse by shareholders.

Seven government agencies published the draft law jointly, seeking public opinion, including the PBOC (the finance ministry) and China’s foreign, banking and securities regulators.