China’s massive foreign-exchange reserves shrank to the lowest levels since May 2012.

The People’s Bank of China reported today that during January, reserves dropped by $99.5 billion (£68.6 billion) to $3.23 trillion, slightly more than the $3.2 trillion markets expected in their poll, Reuters said after the data was released.

And according to Rajiv Biswas, Asia-Pacific chief economist for IHS Global Insight, "the mathematics around this rapid pace of depletion of FX reserves in recent months is simply unsustainable for any length of time."

Biswas pointed out in an emailed statement to Business Insider that:

"In such a downside risk scenario where the PBOC capitulates due to further rapid erosion of FX reserves and there is significant further yuan devaluation, this could also cause shocks in China’s corporate debt markets, as Chinese non-bank borrowers hold a large amount of USD debt, estimated at USD 1.2 trillion in mid-2015.

"The combination of moderating Chinese growth, excess capacity in key industries, rising USD yields and a potential further yuan slide against the USD all create risks of further stress for some Chinese corporate borrowers, which could trigger an increasing number of corporate debt defaults in 2016."

In other words, further depletion from FX reserves could lead to a whole host of knock-on effects that could potentially and eventually lead to an increased amount of companies defaulting on their debt.

Biswas isn't the first economist to sound the alarm. Earlier this week, Societe Generale's Albert Edwards warned that China is running out of money and will have to float the renminbi as a free currency.

At $3.2bn the market remains content that massive firepower remains to support the renminbi. It does not. Our economists estimate that when FX reserves reach $2.8 trillion — which should only take a few more months at this rate — FX reserves will fall below the IMF's recommended lower bound.

If that occurs in the next few months, expect to see a tidal wave of speculative selling, forcing the PBoC to throw in the towel and let the market decide the level of the renminbi exchange rate.