Prominent investor George Soros is warning markets that China's financial system is at risk and the rise in credit will be the downfall for world's second biggest economy.

Speaking at an Asia Society event in New York on Wednesday, Soros said the similarities between the credit markets in China "eerily resemble" to those of the United States in 2007 before the financial crisis.

Recent stimulus packages in China have seen sharp rises in asset prices - namely in the housing and construction sector, but Soros believes these have been fueled by excessive lending to underperforming industries.

"Most of the money that banks are supplying [in China] is needed to keep bad debts and loss-making enterprises alive," Soros said.

Year to date fixed asset investment is up 10.7%, new loan growth up 25% and property investment is up 6.2%. However growth in China continues to slow, last months 6.7% GDP number was the lowest since the financial crisis.

Last month saw a prodigious rise in credit growth. According to the People's Bank of China, new credit for the month or March was 2.34 trillion yuan ($360 billion), well above market estimates. However, the rise in credit is far surpassing economic growth, strengthening the belief that the rise in credit is going to the wrong sectors.

Soros, who founded the Soros Fund Management in 1969, is betting against Asian currency markets as he remains bearish on the Chinese economy. At the World Economic Forum in January, Soros said "A hard landing is practically unavoidable," when referring to the Chinese economy.

Chinese authorities were quick to respond to Soros' comments. The People’s Daily, the Communist Party’s main mouthpiece said “Soros’ challenge against the renminbi and Hong Kong dollar is unlikely to succeed, there is no doubt about that."

While the Chinese economy continues to lack transparency it is hard to bet against George Soros - the man who made $1.5 billion betting against the Bank of England in 1992.