Out of the shadows: Rescuer of shadow-banking product revealed.

China Huarong Asset Management, a bad bank set up during the credit bust of the 1990s, has turned out to be the mystery investor that bailed out shadow-banking product Credit Equals Gold No. 1.

The product was sold to high-net-worth investors through the private banking arm of Industrial and Commercial Bank of China, which held no liability for any losses. Credit Equals Gold No. 1 became a touchpoint for the prospects of impending defaults in trust or wealth management products, aka financial instruments sold outside the banking system.

Just days before its default and when analysts around the world were pointing to it as a worrying example of the instability of China’s financial system, the trust product was bailed out by an unnamed investor.

The UK’s Financial Times newspaper revealed that Ching Huarong Asset Management was the investor who left Rmb3 billion ($489.3 million) at the door of the trust product, and ICBC lent them the money to finance the transaction. Credit Equals Gold No. 1 investors were paid back principal and most of the interest due to them.

Shadow banking is a practice that ballooned in China as lending tightened in the state-owned banking system and companies seeking credit to sustain their businesses and growth looked outside the banking system. Moody’s Investors Service put Chinese shadow-banking assets at $4.8 trillion as far back as year-end 2012, and almost everyone agrees they have grown substantially since then.

However, some critics say concern about these assets is overblown. Yukon Huang, a senior  associate in the Carnegie Asia Program, has argued that not all shadow-banking assets are equally risky. Products based on nonbank trust company lending are high-risk in his view. Another variety, entrusted loans, is credit extended between companies in related sectors, with the lending company shouldering all the risk. These carry less risk, he argues, “because asymmetries of information are lower” in companies that know each other’s businesses.