In a note published last week, Wendy Liu, head of China equity research at Nomura, who is overall bullish on the outlook for the A-share market, wrote: "Data on margin financing activities show that the year-end surge in A-shares was partially fueled by borrowed money. This is a risk factor to consider as we head into the expected bull run of Chinese equities, given that such leverage positions are likely to be shaken out in occasional market pullbacks, which could aggravate declines in stock indices."
Stuart Rae, chief investment officer for Pacific Basin equities at AllianceBernstein is less concerned.
"Most markets around the world have a degree of margin trading. [In China], it's not big enough in absolute terms to cause a problem for the financial system," Rae said.
"It's just sort of highlighting what drove the market, which was this huge rush of retail money - and some of that retail money is borrowed," he added.
Stephen Sheung, head of investment strategy at SHK Private says there are other trends in the mainland market that are more troubling than the rise in margin financing.
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The rise in margin financing isn't the primary reason more funds are entering the market, said Sheung. Instead, retail investors are going through a rebalancing process – shifting away from assets such as real estate or wealth management products – into the stock market.
Two more alarming trends for the market in the short-term are the decline in trading volume since mid-December, and slowdown in the opening of new brokerage accounts in recent weeks, he said.
These trends signal there could be a small consolidation in the market to the 3,000 level before it continues on its uptrend, Sheung said. The Shanghai Composite traded around the 3,258 level on Monday.
CNBC's Leslie Shaffer contributed to this article.