China's shadow banking danger to escalate in 2015

Moody's sees no immediate meltdown in China's shadow banking, however.

Moody's Investor Services believes China's shadow banking will not endanger the country's financial stability within the next 12 to 18 months, but its rapid growth is a serious danger to the Chinese banking system.

Moody’s said it’s more concerned with shadow banking’s strong growth momentum. It estimated shadow banking grew 67% over the past two years to US$4.7 trillion in 2012.

It said this growth was due to credit conditions in the formal banking sector becoming tighter while banks sought to evade regulations on deposit and loan pricing and capital requirements.

Much of the funds provided through shadow banking went to finance infrastructure projects backed by local governments and industries bogged down in overcapacity.