According to Barclays, overdue local government debt hit 10.56 per cent of borrowings last year, more than eight times the rate in the main banking sector. Clearly, these numbers don't add up.
And here the crackdown on the biggest banks such as Industrial and Commercial Bank of China intersects with the more intense surveillance of shadow banking. As Mike Werner, analyst with Sanford C. Bernstein, told the Financial Times, "regulators are concerned as the interbank market has increasingly funded shadow banking".
The rules limiting a bank's exposure to no more than half the deposit base will clearly hit the shadow banks and commercial banks alike. According to data provided by Bloomberg, this ceiling will affect at least a dozen of China's 19 publicly-listed banks.
China's initiatives in shadow banking are another sign of the region's increasing convergence with global regulatory standards. For instance, since November Japan has enforced new curbs on short-selling, a favourite technique of hedge funds. As elsewhere, naked short-selling — that is, selling securities before the vendor has secured them — is now prohibited.
The ban follows problems with some shadow firms. "There were multiple cases where short selling was said to be conducted as insider trading prior to announcements of large-scale capital raising through public offerings," reports the Tokyo-based office of law firm Morrison Foerster.
But while financial-sector regulation in China may broadly reflect what's happening in other jurisdictions, yawning gaps remain in corporate regulation as the cross-border listing scandal revealed. Between 2010 and 2012, over 100 Chinese companies were delisted or suspended from trading on the New York Stock Exchange following fraud or accounting irregularities. As McKinsey reports in a detailed analysis of the situation, these companies represented only a small proportion of the total of such cross-border listings. However the fall-out affected the valuations of most other Chinese companies listed on the NYSE.
The whole affair was, in short, a disaster for dual listings by Chinese companies.
Much the same thing happened in Singapore. As McKinsey notes: "Of the 160 Chinese companies listed in Singapore, nearly one in ten was delisted between 2011 and 2013." With a collective value of $27bn, these companies accounted for five per cent of the Singapore exchange's total capitalisation. As such, the whole incident was a blow to China's corporate regulators.
There were many misunderstandings between the two jurisdictions, not least in the intense levels of compliance demanded by American authorities compared with in China. An unfortunate result has been a stand-off between foreign and Chinese regulators including those of the audit industry. As McKinsey explains, the latter "have long resisted any form of supervision by foreign regulators".
Sign up for CIO Asia eNewsletters.