The mainland's cabinet has warned of the dangers lurking in the unbridled growth of the shadow banking sector.
The State Council's warning elevates the issue from a mere banking concern and shows the increasing seriousness with which Beijing views the problem.
The cabinet recently issued a document defining shadow banking and ordering government departments, financial regulators and local governments to oversee the under-regulated firms involved in such lending, bankers and analysts say.
It said shadow banking was a "beneficial" and "inevitable" consequence of financial development, but supervision should be intensified by sharing responsibilities and improving co-ordination to contain risks, according to sources.
Local government debt has swollen to 17.9 trillion yuan (HK$22.7 trillion) by the middle of last year, nearly 70 per cent more than at the end of 2010, with the bulk of credit coming from the shadow banking system.
Trust firms and other financial intermediaries have channelled a flood of funds to local government financing vehicles, property developers and firms that have had difficulty obtaining loans from banks since 2008, increasing the mainland's financial leverage and complicating regulatory supervision.