Analysis | China's shadow banking too profitable to stop

Returns from the mainland's shadow banking industry have been too good for too long - and it is still default-proofed by the central government.

That is why bigger, more aggressive state-owned players such as insurers and centrally controlled asset management companies are carving out their space in the market as fast as regulation allows.

Insurers on the mainland nearly doubled their investments in trust products in the first half of the year, according to data released by the China Insurance Regulatory Commission. Seventy-eight insurers had invested 280.5 billion yuan (HK$355.8 billion) by June, an increase of 95 per cent from the start of the year.

Meanwhile, shadow-banking lending by asset management companies is dwarfing the non-performing loan business they were originally tasked with, according to a recent CLSA report, which warned they were adding to risk rather than reducing it.

The CIRC issued a set of regulations last month meant to curb the industry's rapidly growing exposure to trust products by imposing stricter solvency requirements on the investments.

The new rules were welcomed by Fitch Ratings, which said they could slow investment in opaque products. But the CIRC also opened a new channel last month through which insurance companies can access the shadow banking market - allowing them to use premiums on certain policies, known as union-link policies, to invest in non-standard financial products.