Dubbed the nation's capital of private financing, the city of Wenzhou offers a textbook example of how non-bank lending has fueled private sector prosperity – and risk-taking – in China.

A recent central bank survey said about 60 percent of all local businesses and the vast majority of households are interconnected through the city's private lending system.

It's a tight financial network that interweaves lenders and borrowers collectively, often to their mutual benefit and sometimes to their terrible loss.