SHANGHAI • For almost two years, the question has lingered over China's market-roiling crackdown on financial leverage: How much pain can the country's policymakers stomach?

Evidence is mounting that their limit has been reached. From bank loans to trust product issuance to margin trading accounts at stock brokerages, leverage in China is rising nearly everywhere you look.

While seasonal effects explain some of the gains, analysts say the trend has staying power as the authorities shift their focus from containing the nation's US$34 trillion (S$46 trillion) debt pile to shoring up the weakest economic expansion since 2009.

"Deleveraging is dead," said Ms Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis in Hong Kong.

The question now is whether China's attempt to create a healthier mix of financing - fewer shadow banks, longer debt maturities - will prove successful. Premier Li Keqiang underscored the challenge last week, warning of risks from sharp increases in short-term debt after China's credit growth surged to a record last month.

"Chinese regulators are now trying to walk a fine line by allowing credit to flow back into the private sector without returning to the old pattern of rapid and unsustainable credit growth," said Mr Nicholas Borst, a China research director at Seafarer Capital Partners in Larkspur, California.

Even after accounting for seasonal distortions, China's leverage indicators have been surprisingly strong so far this year:

• New yuan loans jumped by a record 3.23 trillion yuan (S$650 billion) last month, exceeding estimates;

• Shadow financing rose for the first time in 11 months; interbank borrowing climbed to a six-month high;

• More than 1,800 new trust products have been sold so far this year, the fastest start since at least 2008, according to Use Trust;

• Banks issued 22 per cent more wealth management products in January compared with the year-earlier period, according to PY Standard; and

• Margin debt in China's stock market surged over the past two weeks at the fastest pace since 2015.

It's a stark turnaround after a nearly two-year anti-leverage drive that sank Chinese stocks, restrained economic growth, triggered record bond defaults, and pummelled the nation's gargantuan shadow-banking industry.

China's overall leverage ratio stood at 243.7 per cent at the end of last year, with corporate debt reaching 154 per cent, household borrowings at 53 per cent and government leverage at 37 per cent, according to Mr Zhang Xiaojing, deputy head of the Institute of Economics at the Chinese Academy of Social Sciences. Before that, the nation's leverage ratio climbed at an average of 12 percentage points each year between 2008 and 2016.

In the latest sign of the government's evolving stance, a quarterly policy report published by the People's Bank of China (PBOC) on Thursday watered down language on the campaign to curb excess credit, removing a reference to deleveraging and adding wording on "stabilising the macro leverage ratio".

"China has shelved deleveraging activities almost entirely to support the economy," said Ms Iris Pang, a Hong Kong-based economist at ING Bank.

The PBOC and the China Banking and Insurance Regulatory Commission did not respond to faxed requests for comment.

China's total debt will rise relative to gross domestic product this year, after a flat 2017 and a decline in 2018, Ms Wang Tao, head of China economic research at UBS Group in Hong Kong, predicted in a report this month.

While Ms Wang cautioned that "re-leveraging" may increase concerns about China's commitment to ensuring financial stability, investors have so far cheered the prospect of easier credit conditions.

Yields on lower-rated Chinese corporate bonds have dropped and the nation's stock market - one of the world's worst performers last year - has soared (thanks also to signs of progress in trade negotiations with the United States). The small-cap ChiNext Index entered a bull market on Friday.

"In 2018, it was the double whammy from the deleveraging campaign and the trade war," said Mr Larry Hu, head of China economics at Macquarie Securities in Hong Kong. "In 2019, it could be the interplay between softening growth and more supportive policy."

BLOOMBERG