China on Friday set up its first insurance fund for its $2.1 trillion trust industry in a move to reduce financial risk in shadow banking, the country's banking regulator said.

The fund, jointly established by China Trustee Association and 13 trust firms, will be chaired by Xu Zhichao, an ex-deputy president of the state-owned Cinda Asset Management Co, the China Banking Regulatory Commission (CBRC) announced in a statement published on its website, www.cbrc.gov.cn.

The CBRC gave no value of the fund, but local media reported the fund has a paid-in capital of 11.5 billion yuan ($1.9 billion).

Regulators published the rules governing the fund last week, paving the way for its establishment.

The fund will supplement China's existing securities, insurance and commodity futures insurance funds.

China is also preparing to set up its first deposit insurance fund to protect bank customers.

Assets under management at China's 68 trust firms rose to 12.95 trillion yuan ($2.1 trillion yuan) by the end of the third quarter this year, making trusts the single biggest financial sector after commercial banks, official data shows.

The trust industry's scale has expanded rapidly in recent years, part of Beijing's strategy to diversify funding channels and credit pricing in a system once entirely dependent on state-owned banks, but high-profile defaults on trust products earlier this year raised concern over systemic risks.