Financial instability in China, stemming from its vast shadow banking sector, is a lurking threat for the world's second largest economy, according to Hans Timmer, director of the Development Prospects Group at the World Bank.
"[China has] a shadow banking sector where nobody knows who is on the hook for all kinds of loans; [it] has 160 percent of GDP [gross domestic product] of private sector debt, and there are a lot of vulnerabilities there," Timmer told CNBC on Tuesday.
This weekend, ratings agency Fitch Ratings warned that the scale of credit in the economy was so extreme that it would find it difficult to grow its way out of the excesses, The Daily Telegraph reported.
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The main concern regarding the shadow banking sector - which is estimated at $5.86 trillion or 69 percent of GDP, according to JPMorgan – is the lack of transparency in where the money is going or who is lending - unlike the mainstream, regulated banking sector.
Timmer, however, said he is taking comfort from the fact that mainland policymakers are aware of these problems and are trying to address them.