Shadow lending grows unabated

Medium and long-term loans have been accounting for a larger proportion of credit issued in China this year due to policies aimed at supporting infrastructure construction and shantytown renovation projects.

Despite the central government's efforts to rein in bank lending, there has been no apparent decline in shadow lending. In the shadow banking industry, fund and securities companies have grown rapidly. Assets under management by securities companies ballooned by 1.6 trillion yuan ($260 billion) in the first half of this year, adding to the total of 3.3 trillion yuan reported at the end of 2013.

Since March, China's central bank has implemented measures that have accelerated corporate bond issuances.

With debts mounting, policymakers have begun to take measures to hedge against systematic and regional financial risks. Local governments have been reaching out to financially strapped large companies to offer aid in an attempt to head off defaults. This, however, is only a short-term solution. The local governments don't have enough money to continue the bailouts indefinitely. So far, there has not been any major shadow credit default reported in China. But if more adverse effects of a weakening property market surface and local government finances continue to worsen, a sense of anxiety may sweep through the market once again in 2015.