Bank of England governor Mark Carney has warned China is "top of the list" of risks to financial stability pointing to the country's high levels of debt and its shadow banking system.
In an interview with the BBC to mark the tenth anniversary of the Global Financial Crisis (GFC), Carney questioned the sustainability of China's ballooning debt and the impact it could have on the wider market.
Of all the major risks globally, the governor added, China was at the top of the risk register.
In recent times, China has been engulfed in escalating trade war tensions with the US, with a number of commentators highlighting it as the biggest risk to markets.
"China is a great source for growth for the global economy, it is an absolute economic miracle, lots of positives," Carney said.
"At the same time, their financial sector has developed very rapidly, and it has made many of the same assumptions that were made in the run up to the last financial crisis.
"So there is a big so-called shadow-banking sector in China there is a lot of lending that's based on very good past experience.
"But there is so much lending that the quality has gone down quite substantially," the governor continued. "The level of debt is enormous relative to the size of the economy."
The Chancellor of the Exchequer announced on Tuesday Carney will remain in his role as BoE governor until 31 January 2020 in a move to settle the City's Brexit concerns.
The governor warned a 'no deal' Brexit scenario would lead to major changes in the UK's financial system due to the disruption of relations with the European Union.
"There are risks around Brexit, for the financial sector," the governor said. "We have stressed test our banks against those risks to make sure they have enough of a safety net, both in terms of their own funds plus liquid funds, in case we had a no deal Brexit."
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