Renowned short-seller Jim Chanos warns that China is running out of options to borrow, which at some point will lead to a "credit event."
"The debt is still growing two to three 'X' the economy every year," he told CNBC.
Chanos, who has been bearish on China's economy for several years, is founder and president of Kynikos Associates, with $3.3 billion in assets under management.
"One of the worries we've always had was they were going to lose control of their currency," said Chanos, who sounded the alarm on China in 2009. "That's why I think the markets took a real shudder in August" after China devalued the yuan.
The Chinese economic model of "state directed capitalism" is broken, he declared.
But there is some good news for American investors.
The United States is the country "least effected by what's going on in China," said Chanos, unlike Beijing's Asian trading partners Japan and South Korea, and commodity exporters like Australia, Canada and Brazil.
Chanos’ warning came just hours after Chinese Premier Li Keqiang said on Wednesday, as he tried to reassure global markets that Beijing can keep its economy on track and stock markets in check, Reuters reported.
China has fended off the major risks to its financial system while its economic prospects remain positive, Li said.
"The government took measures to stabilize the market and prevent risks from spreading, we have forced out the possibility of any systemic risks," Li said during a speech at the World Economic Forum, the Switzerland-based corporate think-tank which runs the Davos summit of world leaders.
A run of soft economic data combined with China's surprise devaluation of the yuan and wild swings in Chinese stock prices have rattled markets around the world over the past month.
Li conceded that China's economy was facing downward pressures, but tried to allay concerns that after years of break-neck economic growth it was headed for a hard landing.
"There has been overall stability in China's economic performance in spite of a certain amount of moderation. There's an overall positive trend in spite of difficulties we face," he said, adding that Beijing would "fine tune" its policies to provide more support.
Earlier on Wednesday China's finance ministry said it would accelerate major infrastructure construction projects and reforms to its tax system to help stimulate the economy.
China's government is forecasting its economy will grow by around 7 percent in 2015, a relatively small drop-off in pace from the rate its posted in recent years.
But the surprise move to weaken the yuan in August led to fears Beijing thought the economy was slowing more than they had indicated, causing many investors to bet the currency, also known as the renminbi, was set for a series of devaluations.
(Newsmax wire services contributed to this report).
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