China's trust assets expanded at the slowest pace in two years as the government cracks downon 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 onMonday.

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

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

A "day of reckoning" is approaching for the trust industry with repayments to peak this quarterand next, and banks are set to bear the bulk of losses as defaults rise, Haitong InternationalSecurities 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 willonly really improve if the economy picks up and borrowers get back on their feet," Zeng Yu, aBeijing-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 butless risky products."

Trust assets under management fell 240 billion yuan in June from May. That was the first monthlydecline, 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 threemonths earlier, the trustee association said. The combined profits of trust companies rose 12percent 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 productissued by China Credit Trust Co were bailed out days before it matured. The company last monthdelayed payments on a second product.

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

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

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

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