The downgrading of the world’s second-largest economy’s sovereign debt rating should rank as an important event. But financial markets greeted China’s downgrade last week by Moody’s, the credit rating agency, with their version of a nonchalant shrug. Chinese domestic bond prices remained steady and Hong Kong’s main stock index actually rose during the week.

But the non-event should not lull observers into complacency. China not only has one of the most highly leveraged corporate sectors in the world — with company debts equivalent to about 170 per cent of gross domestic product — it is also engaged in risky manoeuvres to cut an overgrown shadow finance sector down to size.

Indeed, the market’s shrug says more about the structure of China’s financial architecture than it does about the very considerable risks that lurk within it. The truth is that foreign rating agencies have little influence over domestic bond investors and foreign ownership of Chinese bonds amounts to just $61.5bn, or 4 per cent of the total.