China's "shadow banking" system is masking the rise in indebtedness in China, Moody's Investors Service said in a report Wednesday.

The rating agency said overall leverage in China's economy continued to rise with credit growth outpacing the rise in nominal gross domestic product (GDP).

"The growth in overall leverage may be understated, because some of the fastest growing components of shadow banking are not included in TSF (total social financing)," said Michael Taylor, Moody's chief credit officer for Asia Pacific.

The credit growth was measured using TSF, an economic barometer of total fundraising by Chinese non-state entities, including individuals. It didn't, however, include all shadow banking activities, which have grown in recent years.