China’s central bank has warned in the clearest language to date that extreme credit creation and trouble in the shadow banking system could lead to a full-blown financial crisis.

Zhou Xiaochuan, the governor of the People’s Bank (PBOC), spoke of “fierce market reactions” and a possible Minsky Moment, the tipping point when credit cycles break and euphoric booms collapse under their own weight.

It had long been assumed that this particular form of crisis cannot happen a state-run financial system where the banks are under Communist Party control.

Mr Zhou told China Daily that asset speculation and property bubbles could pose a “systemic financial risk”, made worse by the plethora of wealth management products, trusts, and off-books lending. He warned that corporate debt had reached disturbingly high levels and that local governments are using tricks to evade credit curbs.

“If there is too much pro-cyclical stimulus in an economy, fluctuations will be hugely amplified. Too much exuberance when things are going well cause tensions to build up. That could lead to a sharp correction, and eventually lead to a so-called Minsky Moment. That’s what we must really guard against,” he said

China’s lending boom since the downturn in early 2015 is comparable to the massive stimulus after the Lehman crisis. Non-financial debt has galloped up to 300pc of GDP, uncharted territory for a big developing economy.