China's domestic financial system funds over 95% of all debt, dominated by state-owned institutions

China's Policy and state-owned banks account for over 60% of total banking, and own close to 60% of all domestic non-financial bonds. 

Even in the shadow banking system, a majority of the big players, including trust and security firms, have stateowned institutions as their big shareholders. 

"The financial market as a whole has long accepted the notion that those state-owned (or backed) corporates carry the credibility of the state. In that sense, one could say that government debt, direct and contingent combined could be 155-160% of GDP, or over two-thirds of China's total non-financial debt", says Societe Generale.

This fact that both the creditors and the debtors are either controlled or greatly influenced by the government could explain, to a large extent, why the scenario of animminent banking and economic crisis has failed to materialise so far.

The government is able to suppress risk discoveries in the financial system and has indeed been doing so, both intentionally and unintentionally. For evidence of this, we need look no further than bank nonperforming loan (NPL) ratios (still lower than 1.5%), which are widely deemed too low to be true, and the very few cases of bond defaults so far.