Credit in China is growing at a breakneck pace, having increased from 125 percent of GDP in 2008 to 215 percent in 2012. Local-government debt has soared by 70 percent since 2009, reaching almost $3 trillion last June. This is raising serious concerns about the level of risk in China's financial system.

China's rapid credit growth reflects the government's move to loosen restrictions on investment, as well as very low interest rates in the formal banking sector.

Since 2000, the one-year fixed-term deposit rate in China has remained in the 2 to 4 percent range, roughly equal to the consumer inflation rate. The lending rate in the formal banking system — which provides credit to state-owned enterprises (SOEs), urban mortgage borrowers and government projects — also has been relatively stable — 5.5 to 7 percent.