Reserve Bank governor Philip Lowe has pointed to the build-up of debt and bad loans in China as one of the biggest risks facing the Australian economy, noting similar situations in the past have led to a slowdown in growth or financial crisis.

“Perhaps the single biggest risk to the Chinese economy at the moment lies in the financial sector and the big run-up in debt there over the past decade,” he told a forum at the Australia-China Relations Institute (ACRI) in Sydney on Wednesday night. “Among the largest economic risks that Australia faces is something going wrong in China.”

China was not only the main destination for Australia’s iron ore and coal but had become the largest destination for a range of food and service exports. Chinese tourists accounted for one quarter of all the tourist dollars spent in Australia, and Chinese students for one third of all education exports. Service exports to China exceeded those to the United States and Britain combined.

Philip Lowe, governor of the Reserve Bank. Credit:Bloomberg

The Reserve has more staff looking at China than any other single overseas economy, including three staff based in Beijing. So concerned is it about the risk inherent in the build-up of Chinese debt that it convened a special discussion on the topic at its May board meeting.