The total social financing, China's widest measure of credit, in the first half of 2013 reached 10.15 trillion yuan ($1.65 trillion), up 2.38 trillion yuan ($388 billion) from the same period last year, said the People's Bank of China, the central bank, on July 13.

Newly added yuan-denominated loans reached 5.08 trillion yuan ($828 billion), up 221.7 billion yuan ($36.1 billion) from the same period last year, accounting for 50 percent of the total social financing, 12.4 percentage points lower than the same period last year.

The proportion of yuan-denominated loans is at a historic low while corporate bond financing is at a record high. Corporate bond financing, combined with the equity financing on the domestic stock market by non-financial enterprises, accounted for 13.3 percent of the total social financing, a sign that shows more companies gained financing without the presence of financial institutions but directly from the capital markets.

In the first half of 2013, various financing measures were used by the real economy—the part of the economy that is concerned with actually producing goods and services, as opposed to the buying and selling in capital markets—such as undiscounted banker's acceptance bills, trust loans and entrusted loans. They totaled 2.86 trillion yuan ($466 billion), up 1.43 trillion yuan ($233 billion) from the same period last year. This is a comforting fact, signaling that there are more diversified financing measures for the real economy, instead of only relying on bank loans. The allocation of capital has been optimized to better meet the financing demands of the real economy.

However, in the first half of 2013, the total social financing witnessed several structural problems. First, despite the historic low proportion of loans, the amount of newly added loans was still too large. Newly added yuan-denominated loans reached 5.08 trillion yuan ($828 billion), up 221.7 billion yuan ($36.1 billion) compared with the same period last year. Rampant credit expansion is one of the reasons for the cash crunch at the end of June.

Second, the newly added loans mostly flew to the property market, while the amount that went to companies in the real economy has yet to be improved. The newly added individual loans totaled 2.07 trillion yuan ($337 billion) in the first half of 2013, nearly 60 percent of which was mortgage loans. Amid a sluggish economy and lackluster stock market, bank loans are finding their way to the more profitable housing market.

Third, shadow banking continued to grow, including trust loans and entrusted loans. Most capital in the shadow banking system went to the real estate market and local government financing platforms, a main reason for the rocketing price of land and housing prices in the first half of 2013.

Finally, a part of total social financing only flew between financial institutions, such as the interbank lending market. This not only pushed up financial bubbles but also damaged the whole economy, especially the real economy.

The real economy is the national economy's foundation and a major source of profits for financial services. The financial sector, if separated from the real economy, is hazardous to a country's economy. Financial resources flocking to the real estate sector will also cause simmering risks. Urgent tasks for the government include strengthening property curbs, strictly prohibiting credit from circulating within the financial system, and guiding financial resources to support the real economy.

This is an edited excerpt of an article by Yu Fenghui, a financial commentator, published in Shanghai Securities News