China’s shadow finance sector has become a global concern. The International Monetary Fund (IMF) and World Bank have both warned about the risks associated with the rapid build-up of assets within such an opaque sector, while central bankers now regularly reference Chinese shadow finance as a key potential risk to global economic stability.

But while concern over the lurking horrors in China’s financial shadows remains justified, regulatory actions mean that the systemic risks that they pose are finally starting to ebb. This is happening in spite of the fact that the overall scale of the shadow system is continuing to expand.

We estimate that shadow finance assets totalled Rmb46.3tn at the end of the first half of this year (see chart), up 16.3 per cent from the end of 2013 and 11.5 per cent quarter on quarter.