SHANGHAI - Businesses in Shanghai will find it easier to relieve internet financing following the government's latest string of favorable policies aimed at boosting the sector in the city.

The municipal government of Shanghai, China's largest financial hub, issued a guideline on Thursday that will support internet finance while curbing financial risks by cracking down on illegal activities.

The 20-point guideline, posted on the municipal government's website, laid out in broad strokes its plan to nurture internet-based financial services through administrative, financial and legal means.

According to the guideline, the city encourages internet firms to establish entities that provide diverse and flexible internet-based financial services to small and medium companies and households. Established internet firms are encouraged to set up entities to offer services such as micro loans, financing guarantee, financial leasing and factoring.

The city will streamline procedures for registration, pledge financial support through dedicated funding and tax incentives and improve access to credit systems for internet finance firms, the guideline said.

It also encourages established financial institutions to engage in internet-based product development and innovation to expand the reach of their services.

The city also promises to go after illegal activities in the sector such as illegal fund-raising, money laundering, fraud, and the sale of client information.

Southern economic hub Shenzhen in Guangdong Province issued a similar guideline in March to stimulate development of internet finance in the city and control potential risks.

Internet-based financial services caught regulator's attention after China's leading internet firms such as Alibaba, Tencent and Baidu began selling wealth management products online last year. Such products have promised greater returns than traditional bank deposits and have since amassed more than a trillion yuan under management.

China is also the world's largest peer-to-peer lending market, with transaction volume hitting 96.4 billion yuan during the first half this year.

Third-party payment firms are regulated by China's central bank while peer-to-peer lending and crowd funding fall under the oversight by the country's banking and securities regulators.

Regulators from both the central and local government bodies have engaged in discussion over how to regulate internet-based financial services such as online payment, online sale of wealth management products, Peer-to-Peer lending and crowd funding.

Though the country's top financial regulators have yet to implement regulations for the sector, the People's Bank of China, China's central bank, outlined in April five major principles in the oversight of the country's burgeoning internet finance, that it should serve the real economy, act in line with the country's monetary policies and ensure financial stability, protect the legitimate interest and rights of consumers, maintain fairness and order of the market and impose self-discipline.

An initiative led by the central bank to bring a number of leading internet finance firms and traditional financial institutes under an industry association aimed at enabling self-discipline was approved in April.