But a lot of that credit remained within the financial system. Wang noted that China's interbank borrowing has tripled from levels before the 2008 global financial crisis, and interbank assets now stand at nearly 16 percent of commercial banks' total assets. That's much higher than in Western markets.

To circumvent regulatory limits, commercial banks have undertaken massive interbank lending activities in recent years. Meanwhile, depositors were lured by higher returns from new financial products, so banks' deposit growth slowed and prompted them to be more conservative about lending.

Slowdown curbs Q1 lending activity

Central bank in a monetary dilemma

These factors have constrained credit to private corporate borrowers, driving companies into alternative channels and driving real borrowing costs sharply higher.

"Interest rates for some private financing channels have reached 30 percent. What kind of investment could have a return rate of more than 30 percent?" asked Li Yang, vice-president of the Chinese Academy of Social Sciences, a central government think tank.

"The United States has a 0.25 percent benchmark interest rate, but Federal Reserve officials are still complaining the lending rate is too high," Li added.

Chinese officials and economists are aware of the distress in the private sector caused by high rates, but they're also worried that loosening credit will exacerbate the country's already-high leverage.

The total credit-to-GDP ratio reached 215 percent at the end of 2013, according to Standard Chartered Plc.

Wang said abundant problems in the real economy should be solved before the difficult access to credit can be addressed. Without substantial reform, any credit easing is meaningless.

"If local government financing vehicles can still bear the high rates, and property developers can still borrow from trust companies at high rates, and State-owned enterprises still grab the majority of loans, private companies' financing difficulties can't be resolved," Wang said.