China’s central bank has drafted new rules to tackle risks from shadow banking, in a tacit acknowledgment that a host of measures in recent years to control off balance sheet credit have failed to control its risks.

New credit hit a record high in January, mostly due to lending by non-bank institutions. UBS estimates that China’s ratio of debt to gross domestic product hit 277 per cent at the end of 2016, up 133 percentage points since the global financial crisis. Non-bank lending has grown the fastest.

Banks have worked with other financial institutions to shift loans off balance sheet, allowing them to evade credit quotas and capital adequacy requirements. Regulators have permitted the rise of shadow lending, which is necessary to generate the overall credit growth required to meet the government’s ambitious yearly growth targets without overburdening bank balance sheets.