UPDATE 1-China gov't official warns of bubble risks in financial sector

* China's high M2 indicates risks of financial market bubble - financial official

* Says having biggest financial sector in the world "is not a good thing" (Adds quotes from official, possible property tax, policy and economic context)

BEIJING, Nov 16 (Reuters) - China's financial sector faces bubble risks, a government official warned on Thursday and said a property tax may be on the cards in the near future as authorities extended their efforts to reduce a worrisome build-up of debt in the economy.

The ratio of China's financial sector to the overall economy "is the highest ratio in the world," said Huang Qifan, deputy chairman of the economic and finance committee under the National People's Congress, China's largely rubber-stamp parliament.

"This is not a good thing," Huang told a finance forum.

China's financial sector as a share of gross domestic product was 8.5 percent in the first nine months of this year.

The government is in the second year of a crackdown on speculative investment and high corporate debt levels as it looks to defuse financial risks and a property bubble.

Authorities have been particularly concerned about speculative financing and have taken a hard line against risky, shadowbanking activities.

Progress, however, has been mixed as policy makers walk a tight rope in trying to reduce China's years-long addiction to debt without shattering economic growth.

Borrowing rates have risen slightly and M2, or broad money supply, growth slowed to a record low of 8.8 percent year-on-year in October. But credit continues to expand faster than GDP and consumer debt is rising very rapidly.

"M2 in the United States is 70 percent of GDP, ours is over 200 percent," said Huang.

"The excessively high M2 leads to inflation, primarily reflected in housing prices, which have risen about eight-fold in the past 10 years."

Huang said a property tax could be on the cards in the next few years, adding it will help temper speculation in a sector that has drawn a raft of government curbs in the past year.

China has been discussing a recurring property tax for years, but public progress on the initiative ground to a halt after a very limited pilot scheme was rolled out in 2011.

"I believe (a property tax) will happen in the near future, not take 10-20 years. It could happen in the next several years," he said.

Huang, appointed to his current post in February, is considered a leading financial expert in China and is best known for his term as mayor of Chongqing.

He also weighed in on how China manages its massive pile of foreign exchange reserves, which rose to $3.109 trillion in October.

"China has reached a stage where the foreign exchange reserves system must be reformed," Huang said, adding that the Ministry of Finance should play a bigger role in managing the country's foreign reserves.

The reserves currently are primarily managed by the central bank, the People's Bank of China.

Huang said China's forex reserves can currently only be invested in liquid foreign debt, which generates low returns.

"We want to be a true financial power. To be a financial power, we should not lend more money to other countries, but invest globally and have high and sustainable returns."

(Reporting by Kevin Yao; Writing by Elias Glenn; Editing by Shri Navaratnam)