Developments in China are a source of one of the bigger risks for the global economy, Bank of England Governor Mark Carney said.
“China is a great source of growth for the global economy, it is an absolute economic miracle, lots of positives,” Carney said in an interview to BBC to mark the 10th anniversary of the global financial crisis.
“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.”
The level of debt in China is “enormous relative to the size of the economy”, Carney pointed out.
The central banker cautioned that a global financial crisis could be repeated if the financial community turned complacent.
Chancellor Philip Hammond announced on Tuesday that Carney will stay at the helm of the central bank until the end of January 2020 to support a smooth Brexit and transition.
The UK is set to exit the European Union in March 2019.
Since the global financial crisis 10 year ago, British households have worked very hard to pay off debt and have put themselves and the economy in a better position, Carney noted.
Even then, “the level of debt is still relatively high” and “there are pockets where there is quite significant debt”, causing concern for the central bank, the BoE Chief added.
Compared to the situation before the collapse of Lehman Brothers, the financial sector is aware and better equipped to deal with risks, especially those that could arise from Brexit, Carney said.
“We have stressed tested our banks against those risks to make sure they have enough of a safety net both in terms of their own funds and liquid funds and in case we have a no-deal Brexit,” he added.
The BoE Governor has not ruled out a no-deal Brexit and has warned earlier that the economy would suffer a shock if that is the case.
Carney acknowledged that cyber attacks on banks were a new class of risk that evolved over the past decade and banks must have plans to deal with one.