SHANGHAI - Growth of China's trust assets slowed from a year ago to reach 10.9 trillion yuan ($1.8 trillion) by the end of 2013, the China Trustee Association said on Thursday.

This represents a 46-percent increase from 7.47 trillion yuan at the end of 2012, marking the first time in four years the trust industry in China has seen annual growth below 50 percent.

Growth in assets also slowed during the first three quarters of last year, the association said.

China's trust industry has become an alternative source of credit for companies and local governments, as traditional banks are banned by regulators from extending loans to sectors plagued by overcapacity.

In a research report co-authored with Ping An Trust Company, consulting firm McKinsey said the rise of the trust industry as an alternative source of financing in the past several years came as Chinese banks and capital markets failed to provide sufficient credit for fast-growing and cash-hungry sectors like real estate and small and medium-sized firms.

The growing number of high net worth individuals in China with investable assets worth over 1 million dollars has also contributed to the industry's growth as the wealthy chase high-yield alternatives to low interest rate deposits and an underperforming domestic stock market, the report said.

Analysts have long warned of the rising risk that has gone largely unregulated in the trust industry, though so far the industry has yet to see a major default of trust loans.

A trust product that channeled investments totaling 3 billion yuan was on the verge of default in January this year following the bankruptcy of a coal mining company it had invested in. A last-minute deal promised to return principal to investors and narrowly averted a potential outbreak of more defaults of trust loans.

"Though it is unlikely for systemic risk to occur in the industry, several isolated incidents that reveal the risks in the industry should sound alarm among trust firms and regulators," said Zhou Xiaoming, a director with the association.