There are already signs of distress among Chinese businesses stemming from tighter liquidity conditions in the world's second largest economy, according to the China Beige Book's survey for the second quarter.
"Firms are telling us that rates are going up, and have been for three quarters. And borrowing is going down," Leland Miller, president of U.S. based China Beige Book (CBB) International told CNBC Asia's "Squawk Box" on Tuesday.
The CBB, which launched its first quarterly private sector survey in 2012, uses methodology adapted from the U.S. Federal Reserve's Beige Book. Its survey, which gathers anecdotal evidence on current economic conditions, is based on interviews with over 2,000 people from different sectors and regions of the country.
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According to Miller, "credit isn't getting to small and medium sized enterprises, it's not getting to the economy."
Despite data showing total social financing, the widest measure of credit, was up 52 percent year on year in the first five months of the year, Miller says it is not an accurate reflection of liquidity on the ground.
"Despite widespread reports that a massive growth in shadow banking has resulted in a tidal wave of total social finance liquidity, we see no growth in the frequency of non-bank lending," Miller said.
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According to Moody's Asian Liquidity Stress Index published earlier this month, the China sub-index showed that about one third of below-investment grade Chinese companies had inadequate internal sources of cash to fund their debt over the next 12 months.
"Our data are clear that there has been no flood of credit; on the contrary, which helps explain the recent SHIBOR [Shanghai interbank offered rate] spikes," he added.
While the 7-day repo rate - a measure of interbank funding availability - has eased from above 10 percent last week to 7.5 percent on Monday's close - it remains far above the one-year average of 3 percent.
The People's Bank of China has largely taken a back seat in its response to the cash crunch - which threatens growth in the mainland economy - saying on Monday that overall liquidity was at a "reasonable" level and asking commercial banks to improve the ways they manage their liquidity and control lending.
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This hands-off approach has unnerved investors, sending the benchmark Shanghai Composite to its lowest levels since 2009.
"The risk here is people don't understand that the Chinese government seems to mean business, they want to tighten conditions," he said, referring to China's efforts to tame informal lending and slow credit growth.
"It's up to the market to understand that this is what is happening right now," Miller added
-By CNBC's Ansuya Harjani
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