It would be easy to dismiss China’s first downgrade by an international rating agency since 1999 as unjustified pessimism. At less than 20 per cent of national income, China’s official debt stock is tiny. Growth, albeit slowing, remains healthy. In any case, Beijing is not short of options to repay its debt, whether via its central bank’s printing press or by increasing taxes that are still low.

Yet the report that accompanies Fitch’s decision to lower Beijing’s rating from AA- to A+ is right to emphasise China’s rapid expansion of credit as a real threat to economic stability. There are two areas of immediate concern. First, the size of the debt mountain accumulated by local authorities. Second, the stability of China’s growing shadow banking sector.

China’s municipalities have been saddled with loans since 2009, when Beijing encouraged its provinces to go on an investment binge as part of a heroic stimulus package. Roughly a quarter of these projects generated no revenue. The debt stock for local governments, unconsolidated in the public debt figures, is more than Rmb10tn ($1.6tn), a fifth of national income. Much of it is in short-term bank debt, placed in special-purpose investment vehicles designed to circumvent a ban on borrowing.