China’s shadow banking sector continued to grow at breakneck speed in 2013 and now ranks as the third largest in the world, a report released by the Financial Stability Board showed on Thursday.

The country vaulted ahead in the rankings under a new, more targeted definition of shadow banking adopted by the FSB, a task force set up by G20 economies in the wake of the 2008/09 global financial crisis to improve financial regulations.

The report comes amid a series of shadow banking defaults in China, including that of a 4 billion yuan ($652 million) credit product backed by China Evergrowing Bank in September, which brought increased scrutiny of the industry and the risks it poses to the world's second-largest economy.

China’s government is now weighing new rules to tame this less-regulated, riskier type of lending, while trying to ensure that more money from the shadow banking system is invested in the real economy rather than speculative activities.

“Among emerging markets, the size and rapid growth of shadow banking in China warrants particular attention,” the report said.

In China, assets of “other financial intermediaries” - which exclude traditional financial institutions such as banks, pension funds and insurance companies - grew more than 37 per cent year-on-year in 2013 to just under $3 trillion, data released with the report showed.

That’s a slight moderation in growth from roughly 42 per cent growth in 2012, according to the FSB.

Still, China’s growth in assets of non-bank financial intermediaries in 2013 was second only to Argentina.

But the figures may be overly conservative.

Shadow banking may involve up to 27 trillion yuan ($4.39 trillion) of assets, equivalent to one-fifth of China’s formal banking sector, according to the Chinese Academy of Social Sciences.

To rein in this growth, China’s banking regulator published draft rules in August aimed at strengthening oversight of financing activities including securities firms and trust companies and such products as entrusted loans and wealth management products.

But the government does not want to completely quash this riskier lending. A central bank vice governor said last month that the benefits of shadow banking to areas of the economy generally starved for financing such as small and medium enterprises were undeniable.

Under the broadest measure of non-bank financing, China’s share of global shadow banking quadrupled between the end of 2007 and 2013 to 4 per cent, the report showed.

The broad measure shows that shadow banking assets in developed countries continue to dwarf China’s both in absolute terms and as percentage of GDP.

Global non-bank financial intermediation grew by $5 trillion in 2013 to reach $75 trillion.

The United States and Euro area each account for roughly one-third of global shadow banking, followed by Great Britain with a 12 per cent share and Japan’s 5 per cent.

But a narrower metric for shadow banking introduced in this year’s report reveals that China had the third-largest shadow banking sector behind the US and UK in 2013. That figure strips out non-bank financial activities that aren’t necessarily shadow banking and therefore carry less risk.

The global shadow banking industry grew 2.4 per cent to $35 trillion in 2013 under the narrower measure.