While economists and many foreign investors fret about China’s spiralling debt and rising defaults, a small niche of alternative asset managers is braving the China credit space, attracted by high yields from borrowers shut out from other sources of finance.

Global banks have pulled back on cross-border lending to China, but some private debt funds are moving in to plug gaps in a domestic financial system still dominated by state-owned banks.

Crayhill Capital Management, a New York-based alternative credit fund, recently announced a $300m investment in a trade financing platform operated by Stenn International, a UK-based trade financing provider. Stenn purchases trade receivables from suppliers in China and Southeast Asia who export consumer goods such as apparel, toys and electronics to big western retailers. The focus is on small- and medium-sized enterprises.