Though China's manufacturing gauge reached a five-month high on Thursday, the world's second-largest economy remains a major concern, veteran trader Art Cashin told CNBC.
"The shadow banking over there is potentially 2007 all over again if things don't go properly," said Cashin, director of floor operations at UBS.
Shadow banking refers to how financial intermediaries create credit by means that escape government oversight. Often, these financial instruments are highly complicated and unregulated. Credit default swaps, for example, are said to have led to the U.S. housing collapse that sparked the 2007-2009 financial crisis.
"There is contagion, but it's straight line contagion and that can be equally dangerous," Cashin said on CNBC's "Squawk on the Street" from the floor of the New York Stock Exchange.
Read MoreChina PMI hits 5 month high
Asian markets ended mostly higher on Thursday after HSBC's May flash purchase manufacturing index for China rose to a five-month high of 49.7, above the bank's final April reading of 48.1 and the government's April official figure of 50.4.
—By CNBC's Drew Sandholm.