"Sometimes when the market is good, I would make profits enough to buy an Audi in just a week or two. However, when the market is down, it's also possible to lose half an Audi very quickly," said Zhang, a 32-year-old who works in the financial industry in Hangzhou, a city near Shanghai.

As more Chinese jumped into the market in the hope of instant wealth, peer-to-peer websites offering loans for stock investing have mushroomed. They are among a multitude of sources of leverage outside of traditional margin financing that threaten to complicate any efforts to prevent an unruly reversal of China's stock market boom, which is already faltering.

Chinese brokers have extended 2.1 trillion yuan ($438 billion) of margin finance to investors, double the amount at the start of the year. But this often-cited figure is only part of the mountain of debt taken out to finance share purchases. Another 1.7 trillion yuan ($355 billion) may have flowed into stock market investment from wealth management products, online lending sites and other sources, according to a Bloomberg survey of analysts.

"While we can regulate margin finance within a brokerage, for those financing activities which are not within the securities houses, it's very difficult to regulate," said Ronald Wan, the chief executive officer of Partners Capital International, an investment bank in Hong Kong.

The perils of debt-fueled trading were underscored in past weeks, as the unwinding of margin loans helped drive China's benchmark index into a bear market.

Lower thresholds

Online peer-to-peer, or P2P, lending accounts for just a small part of total leverage, yet it has expanded rapidly and attracted the type of investors who can least afford losses -- those that don't qualify for traditional margin loans.

About 40 online lenders helped arrange more than 7 billion yuan of loans for stock purchases in the first five months of 2015, according to Shanghai-based Yingcan Group, which tracks China's more than 1500 such credit providers. Lending volumes surged 44 per cent in May from April, Yingcan estimates.

The sites are popular because they allow high levels of leverage, and lack the restrictions brokers impose on margin finance accounts, such as high deposits and limits on the types of stocks against which clients can borrow.

"The threshold for lending on peer-to-peer websites is lower, this suggests that investors who borrow through these sites tend to be weaker financially," said Shen Meng, a Beijing-based director at Chanson & Co., an investment bank.

'Good tool'

Zhang the investor says he can borrow up to five times his capital using P2P sites, while brokers only allow leverage of up to three times. He can also take positions in an almost unlimited number of stocks, while brokers only extend margin finance for 900 of the shares traded in Shanghai and Shenzhen.

One example of the new online lenders is Ppmoney.com, a Guangzhou-based P2P website which says its investors need only 2000 yuan in cash to qualify for loans. Brokerages require customers to put down at least 500,000 yuan to open a margin finance account.

Colorful moving ads at the top of the Ppmoney website proclaim "four times leverage, speedy transfer" and "we provide funds, you invest, profits are all yours." Investors can borrow as much as 5 million yuan ($1 million) for potential daily returns as high as 60 per cent, the website says.

"Leverage is a very good tool in a bull market as it helps investors to accumulate profits more quickly," said Liu Yang, chief executive of Miniu98.com, another site that arranges stock loans. "Reaping higher returns by taking on higher risk is a right that every investor should enjoy. I am hoping to afford small investors with the right."

Double whammy

One indicator of the risk involved lies in the interest rates advertised on the sites. They typically charge rates of up to 1.7 per cent a month, equivalent to an annualised rate of more than 22 per cent and almost triple the typical margin cost for a brokerage account. So at a time when China's stock market has slumped from its peak, investors who took out P2P loans face the double whammy of high borrowing costs on share holdings that are falling in value.

"Many investors have already been forced to close their positions at a loss in recent weeks as the stock market declines have been too severe," said Yingcan CEO Xu Hongwei.

While the Shanghai Composite Index jumped 5.5 per cent on Tuesday, it remains 17 per cent below its recent intraday peak on June 12.

More losses may be in store. Strategists at BlackRock, Credit Suisse and Bank of America all said last month that Chinese equities are in a bubble. The median stock on mainland exchanges is valued at 73 times earnings -- higher than when the market peaked in October 2007.

Zhang, the Hangzhou investor, said he is growing concerned about market volatility and has cut his leverage.

"I will head for the exit if the market collapses, erasing, say, one-fourth of the 200 per cent return rate that I accumulated so far," he said.

Bloomberg