China's trust assets expanded at the slowest pace in two years as the government cracks down on shadow banking and investors reassess the risks of the high-yield investments.

Trust companies' assets under management climbed 6.4 percent to 12.5 trillion yuan ($2 trillion) as of June 30 from three months earlier, the China Trustee Association said in a statement on Monday.

That is the slowest growth since the first quarter of 2012 and compares with an average annual gain of 50 percent since 2008.

Premier Li Keqiang is grappling with sustaining economic growth while containing financial risks after shadow banking exploded in China in 2010.

A "day of reckoning" is approaching for the trust industry with repayments to peak this quarter and next, and banks are set to bear the bulk of losses as defaults rise, Haitong International Securities Co economist Hu Yifan wrote in a July 25 report.

"Regulators, banks and local governments are all trying to contain the trust risks but things will only really improve if the economy picks up and borrowers get back on their feet," Zeng Yu, a Beijing-based analyst at China Securities Co, said on Tuesday by phone.

"Chinese investors are becoming more risk averse and increasingly will go for lower-yield but less risky products."

Trust assets under management fell 240 billion yuan in June from May. That was the first monthly decline, the statement said, without specifying a time period.

Trust products' average yield rose to 6.87 percent in the second quarter from 6.44 percent three months earlier, the trustee association said. The combined profits of trust companies rose 12 percent to 28.9 billion yuan in the first half from a year earlier, it said.

China averted its first trust default in January as investors in a 3 billion yuan high-yield product issued by China Credit Trust Co were bailed out days before it matured. The company last month delayed payments on a second product.

The banking regulator tightened rules for new trust products in April as borrowers from coal miners to developers struggled to make repayments. Li wants to aid companies and economic growth by boosting the supply of bank loans and limiting the more expensive shadow financing so that firms have lower borrowing costs.

By the end of June, 35 percent of trust assets related to financial institutions' investments using their own funds, 34 percent to wealth-management funds and the rest to individuals with at least 1 million yuan to invest, according to the statement.

"Trust companies are under pressure to improve risk controls after many products ran into problems in the first half and regulators flagged the risks, so they have to slow down new issuance," said Zeng.

"The growth rate of the past few years is just not sustainable."

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