Chinese non-performing loans (NPL) reached 456.4 billion yuan at the end of the second quarter, but the non-performing loan ratio held steady at 0.9 percent.

Many have questioned the accuracy of the 0.9 percent figure. And we've previously reported that the Chinese government is making the problem worse by plying "zombie companies" with more cash and is underplaying the bad debt problem.

But the China Banking Regulatory Commission (CBRC) is getting extremely anxious about the NPLs. Since July, it has issued six notices about credit risks associated with underground lending, developers, local-government financing vehicles, etc. And with good reason.

The number of companies in default or with severe cash flow problems has surged since the second quarter, according to Societe Generale's Wei Yao.

"Apart from a couple of property developers, several sectors, including steel trading, shipbuilding and solar panel manufacturing, seem to be running off the cliff all together.