Time running out for China on capital flight

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A big drop in the yuan would send a deflationary shockwave through a fragile world economy already on the cusp of a debt-deflation trap, and do so at a time when the eurozone and Japan are actively driving down their currencies. It would risk a pan-Asian currency storm along the lines of 1998, but on a much bigger scale.

The IIF's Mr Collyns, a former assistant US Treasury Secretary, is less sanguine. He calculates that total dollar debt in China peaked at roughly $1.5 trillion in late 2014, if all forms of exposure are included. "We think they have paid off a third of this. Half of the outflows are to repay dollar debt," he said.

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"The Chinese have to restore confidence by pushing through reforms. There must be greater transparency in fiscal and monetary policy, and they must tackle excess industrial capacity. At the moment they won't impose losses on anybody," he said.

The warnings come as China's $3.3 trillion foreign reserves fall to the bottom end of the safe band under the International Monetary Fund's measure of reserve adequacy (ARA).

The IMF recommends a band of 100pc to 150pc under its complex ARA measure. China is currently near 120pc and almost certainly fell further in January.