Shadow banking assets, including entrusted loans and other nonbank lending products, rose by a net 476.8 billion yuan (US$68.8 billion) in August, the most since March 2017, according to data from the People’s Bank of China. This was the first net gain in five months, as repayments usually exceed new financing.

A key factor in the jump is believed to be infrastructure investment at the local level, which China’s State Council is counting on to kick-start economic growth as the central government’s zero-Covid policy crimps business activity.

The council directed local authorities to use all of the funds raised through infrastructure bonds for this year by the end of August. Local government financing vehicles – state-owned investment companies used mainly to fund infrastructure projects – have reportedly tapped sources beyond standard bank loans to make up funding shortfalls.

The shadow banking upswing may also be driven partly by small and midsize businesses struggling to borrow from conventional banks.

Average borrowing costs have fallen after three rate cuts by the PBOC so far this year. But a survey of economic conditions by the Cheung Kong Graduate School of Business, which covers many private-sector companies, found that it was harder for businesses to raise cash in August than in July. That may be forcing many to rely on shadow banks for funds.

Meanwhile, net lending by conventional banks rose only about 3% on the year in August. While medium- and long-term loans to corporate borrowers jumped 41%, longer-term lending to individuals, mostly mortgages, dropped 38%.

As cash-strapped real estate developers are forced to halt work on apartment projects, many owners of unfinished properties have refused to make mortgage payments. The resulting shock waves rippling through the market are reportedly spurring some consumers to hold off on new purchases or pay off existing home loans early.