With their roaring share prices, the cheerleading of the State and an estimated $60billion (£31billion) war chest of capital behind them, Chinese banks ended 2007 bathed in an aura of invincibility. On the evidence of acquisitions alone - chunky stakes in everything from Bear Stearns to Standard Bank of South Africa - the world braced itself for the arrival of the aggressive new masters of the universe from Beijing and Shanghai.

It may have been premature. A very real - and altogether more toxic - aura now threatens to choke off the banks' ambitions at their moment of glory. Frenzied factory output, belching chimneys and the poisons of industry may, for the first time anywhere, be about to shake down a financial sector.

For banks everywhere else in the world, the sub-prime debacle in the United States is likely to inspire most of the fear and loathing in 2008. Chinese banks will take their share of sub-prime punishment, too, but yesterday they were jolted by a more familiar nightmare from their unhappy past. Non-performing loans (NPL) could rebound, the financial regulator said, and for even the most robust-looking Chinese banks the wounds of the last crisis have yet to heal completely.

What makes yesterday's warning so bleak - and has already been cited by analysts to justify a slew of earnings downgrades - is that the looming NPL problem is more nuanced this time around. The worst horrors of corruption are, analysts say, under better control than before, but companies exposed to property fluctuations and uncertain exports will, as before, pose plenty of risks.

This time companies in highly polluting sectors will be added to the danger list of NPL candidates, as clean-up efforts and tighter regulation shatter their business models. Sectors previously seen as defensive in times of economic tightening could weaken suddenly as capital is diverted into more efficient machinery, cleaner use of energy and greater responsibility for environmental damage.

Banks' shares bore the brunt of yesterday's rout in Hong Kong. Loan growth projections are limited by the Government's own cooling measures and those huge pots of capital are already a little slimmer than they were last year. Chinese banks are content with their image abroad as the aggressive new players in global finance, but they know that management is immature and still learning.

As the painful drive to clean up China plods on, it may be some months before the financial titans flex their muscles on the international scene with last year's confidence.

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