Fitch Ratings warned on Tuesday that the growing shadow banking sector in China, if not dealt with properly, could puncture the country's credit bubble and spark a financial crisis.

In a speech in Hong Kong, Charlene Chu, senior director of financial institutions at the global ratings agency, said that at the end of 2012 Chinese lenders were involved, directly or indirectly in three-quarters of the 11.7 trillion yuan ($1.91 trillion) of outstanding credit "in the shadows" or extended by non-bank financial institutions.

Little light is shed on the quality of those issuers or borrowers in the shadow credit sector, which accounts for a third of the country total 34 trillion yuan of non-loan credit.

But any stress put on its non-bank financial institutions, including micro-loan organizations and pawn shops, will gradually work its way into its banking system, and put pressure on balance sheets, Chu said.

"It seems there is no connection between non-bank financial institutions and the main lenders. But in fact, there is," said Chu.

One example of the potential effects was last year's high-profile case of China Credit Trust Co, a leading trust company in China.

A new trust planned by the company, for which money was raised, was never started and the funds were used to repay other debts.

China Credit Trust argued that Industrial and Commercial Bank of China, which introduced investors to the trust company, should be liable for some of its losses, underlining lenders' indirect exposure to non-bank credit.

Chinese lenders currently appear to be in good shape, with non-performing loans at a benign rate of just 1 percent.

But experts point out that this does not paint the real picture, as 36 percent of all outstanding credit exists outside of the lenders' loan portfolios.

China's credit levels have been growing rapidly since 2008, when the government flooded the market with liquidity to kick-start its crisis-hit economy.

China's credit-to-GDP ratio has jumped by 75 points to 200 percent in the five years ending 2012.

In the US, the ratio grew 40 points over the five years leading up to the bursting of the subprime mortgage-lending bubble.

Making things potentially worse in China is the fact that its economy has grown almost immune to credit stimulus.

In January, when total social financing jumped by 160 percent year-on-year, fixed asset investment grew just 21.2 percent, then slowed further to 20.9 percent in March.

Jing Ulrich, chairman of global markets for China at JPMorgan Chase & Co, said she thinks that China can no longer depend on credit to stimulate growth.

In April, Fitch downgraded China's sovereign credit rating for the first time since 1999, cutting its long-term local currency rating to A+ from AA-, citing a number of "underlying structural weaknesses" as a result of rapid credit expansion.

China's first quarter GDP growth slowed to 7.7 percent year-on-year, from 7.9 percent in the last quarter of 2012, lower than market expectations of around 8 percent, but Chu said a financial crisis "is not inevitable" as the country still has the financial firepower to halt the downward spiral.

One of the strongest positive factors is that the vast majority of the borrowers and lenders are State-owned, meaning there is more flexibility and tolerance to debt repayment and servicing.

China's closed capital account also prevents money from being taken out of the domestic financial system.