New players in China's shadow banking sector are growing rapidly despite attempts to clamp down on opaque lending, taking advantage of a regulatory anomaly to prosper but also raising the risks of a build-up of debt in the slowing economy.
Authorities have sought to rein in the riskiest elements of less-regulated lending after a series of defaults, including a 4 billion ($640 million) credit product backed by Evergrowing Bank in September, because of the danger such debts could pose to the health of the world's second-largest economy.
And a government measure created in 2011 to capture shadow banking, total social financing (TSF), shows some success, with shadow banking contracting in the second half of 2014 to roughly 21.9 trillion yuan ($3.5 trillion), according to a Reuters' analysis of central bank data.
But that fails to capture as much as 16 trillion yuan ($2.6 trillion) of financing mostly created in the past two years by firms overseen by the China Securities Regulatory Commission (CSRC) rather than the banking regulator, according to a Reuters calculation based on third-party statistics.
When including that financing, shadow banking is roughly equivalent to more than 45 percent of loans in the conventional banking system.
"We can observe this, but we don't have concrete statistics, so we're unclear on the scope," said Zeng Gang, director of the banking department at the Chinese Academy of Social Sciences, a think tank that advises the central government.
Shadow banking is therefore harder to regulate, he said.
Indeed, the State Council called on the central bank last December to develop new statistics to measure shadow banking.
In shadow banking's new incarnation, brokerages and fund management companies can pool retail investor funds or invest funds already gathered by a bank, acting as an intermediary rather than the actual investor.
"China's credit landscape is just simply evolving too quickly, so TSF doesn't provide as comprehensive a picture as it used to do," said Donna Kwok, an economist at UBS.
Shadow banking, defined as non-bank credit and off-balance sheet bank lending, is an important part of banking systems around the world. In China, it has helped smaller, private companies access credit and offered investors better returns than bank deposits.
The central bank has said the benefits of the sector are undeniable.
But it can also fund risky or unproductive investments, building up risks in the banking system. This is what authorities are trying to tackle.
As the China Banking Regulatory Commission (CBRC) clamped down on trust companies and off-balance sheet lending, the sector adapted to capitalize on CSRC rules from 2008 that allowed brokerages to launch asset management subsidiaries.
Investment consultancy Z-Ben Advisers said these units had more than tripled assets under management from 1.89 trillion yuan in 2012 to 6.82 trillion at the end of June.
Fund management firms followed suit, growing from 100 billion yuan in 2012, the first year they were allowed, to 2 trillion at the end of June.
More than 95 percent of those funds qualify as shadow banking, according to Howhow Zhang, head of research at Z-Ben.
"There was next to nothing three years ago and now you have 5, 10 trillion yuan from platforms with little experience in managing this kind of business," Zhang said.
The funds raised often back the same projects that have been the bread and butter of shadow banking: real estate, infrastructure and others that can raise risk flags for conventional banks.
Lending by trust companies - shadow banking's old guard - may still be underestimated by 7 trillion yuan, as financing is often labelled as an "investment" which is not captured in TSF, but nevertheless that sector's rapid growth is over under the CBRC's stricter regime, analysts said.
The variance between the two regulators can mean different treatment for financial companies with the same parent firm.
Some of the larger brokerages selling investment products are parts of larger groups that also own banks, such as Everbright Securities and Everbright Bank, and CITIC Securities and China CITIC Bank. A CITIC spokesperson did not comment for this story, and calls to the Everbright Group were not answered.
Banks are limited to offering depositors a maximum 3.3 percent annual rate, whereas brokerages, trust funds, fund management firms and other non-bank financial institutions can offer products with higher returns.
Banks can use "wealth management products" to offer higher returns, but face more restriction than non-bank counterparts.
Should the CSRC tighten rules on shadow banking, financing may just shift to emerging areas such as peer-to-peer lending.
But perhaps the biggest threat for now to shadow banking is not regulators but the mainland stock market, where the has gained more than 30 percent since Nov. 21, making shadow financing returns look paltry.
"Nowadays the stock market is very good, so we just focus on trading," a brokerage sales associate said.