China's overall leverage ratio is still growing, but at a slower pace. Overall leverage was 257.8 percent of GDP at the end of the first quarter of 2017, slightly up from 257 percent at the end of 2016. The non-financial corporate leverage ratio declined to 165.3 percent at the end of March from 166.3 percent at the end of 2016, according to BIS.

The government has also stepped up scrutiny to stem malpractice in the financial sector, as well as placing strict controls on the real estate market to curb speculation.

"Deleveraging is a slow and complicated process, and the permanent cure to high leverage risks is solving structural issues," said Zhou Yueqiu, director of the Urban Finance Research Institute of Industrial and Commercial Bank of China.

Peng also said that although the possibility of China seeing a systemic financial crisis was small, it did not mean that the real estate and financial sectors should seek unlimited expansion.

"To make further financial structural adjustment, China should increase the use of fiscal tools in the money supply instead of only relying on bank credit. Meanwhile, the government should strengthen its ongoing regulatory scrutiny to curb misconduct in the sector," Peng said.

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