Beijing has declared a partial victory over shadow banking, which has loomed large over China's $30 trillion banking system in recent years, enabling it to pursue looser monetary policy without exacerbating risks.
The explosive growth of non-bank lending — known as shadow banking — since 2010 created a thick tier of riskier borrowers paying higher rates to a new, lightly regulated sector, raising the prospect of a wave of defaults as the economy slows.
Data released last month by the People's Bank of China show that credit creation from all sources fell 6 per cent in 2014 from a year earlier, only the third annual decline since collection of data on "total social finance" started in 2002. This fall reflects the slowing growth of non-bank lending, analysts say.
"Although shadow banking has continued to grow, it has done so more slowly in recent quarters as regulatory measures to rein in the sector's growth appear to be having an effect," says Michael Taylor, chief credit officer for Asia-Pacific at Moody's.
The steady stream of regulations intended to curb risky off-balance-sheet financing has led to a rebound in the share of new debt channeled through banks, with local-currency bank loans comprising 63 per cent of all new credit last year, the highest level since the stimulus year of 2009.