A rapid withdrawal of funds would not only cause volatility in the currency exchange markets, but could also generate currency moves similar to those during the Asian crisis of over a decade ago.

"Capital flows -- it's a real risk this year for the economy," Zhu Min told participants at the World Economic Forum's annual meeting in the mountain resort of Davos.

Zhu noted that investors are increasingly borrowing the cheap US dollar, and investing the borrowed funds in emerging markets, where interest rates are higher, and therefore generating a better return than saving in the dollars.

This phenomenon called carry trade in the US dollar is a "massive issue today," said Zhu.

"It's bigger than the Japanese yen carry trade 12 years ago," he said.

However, if the United States were to tighten its lax monetary policy, making borrowing more costly, funds could then flow out just as suddenly from emerging markets, back into the US market.

This could cause a collapse in emerging markets' currencies, and spark a repeat of the 1997-1998 Asian financial crisis.

Then, the Japanese yen was cheap and investors were borrowing it and investing in South-east Asian economies, fueling strong growth in the region.

But as exports slumped amid a global demand slowdown, speculators began attacking the South-east Asian currencies, believing that they were overvalued.

Thailand was first to crack and it abandoned its fixed exchange rate and float its currency against the US dollar.

Other currencies followed suit and crashed under crippling debt levels and amid soaring interest rates.

"It's what we learnt from the Asian financial crisis. Because the yen went back to the Tokyo market," said Zhu.

"Everyone is concerned about the direction which the capital flow will move. It's an absolute real risk for the year," he said.

Zhu also defended China's stance on the yuan, saying that a stable yuan was crucial.

"It's very important to have a stable yuan particularly in this very volatile market," he said.

Beijing has been under fire for deliberately undervaluing its currency.

However, Zhu said that a stable yuan was "good for China, it's also good for the world."

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