The bond-market investigation, led by China's central bank and top securities regulator, focuses on a kind of transaction that could magnify trading risks for Chinese banks and brokerage firms, the people said.

WSJ: China Probe Focuses on Trading of Bonds

But while many major international banks have seen large writedowns in the wake of rising defaults among the sub-prime mortgage market, the majority of China's US mortgage-backed securities were underwritten by US government agencies such as Fannie Mae.

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But it's also because the China Securities Regulatory Commission has dramatically boosted its oversight capacity as the market has developed.

WSJ: Jake Lynch: To Control Fraud, De-Control Chinese Capital