Beijing's credit-tightening policy could have sent some cash-strapped small and medium-sized enterprises (SMEs) to seek costly funding from alternative financing channels - the underground.
'If their loan demand cannot be satisfied by the banking sector, companies will look to the non-banking financial sub-sector for funding,' said David Kiang, a vice-president for international corporate banking at Shenzhen Ping An Bank, a subsidiary of Ping An Insurance (Group).
Mr Kiang added that some hard-pressed businesses might have borrowed from mainland pawn shops, which lend sums against collaterals at high funding costs just as Hong Kong's money-lenders do.
The SMEs, particularly those in the export sector, are being hit by rising costs stemming from costlier raw materials, a new labour contract law stipulating more worker benefits, and the yuan's rapid appreciation.
Beijing's policy to limit banks' loan growth also makes it harder for SMEs to borrow. Big banks traditionally prefer to lend to larger firms and have become even more selective now that the lending cap is in place.
The China Banking Regulatory Commission has limited commercial banks' loan growth to 12 per cent this year, down from 15 per cent, a recent newspaper report said. Banks also are expected to adhere to quarterly loan growth targets.
'It is highly likely businesses are engaging more in inter-company loans as well as underground financing, which helps them survive, although it isn't healthy for the financial sector,' said Stephen Green, Standard Chartered Bank's chief China economist.