The Federal Reserve on Monday warned that stresses in the Chinese real estate sector, including from debt-ridden property developer Evergrande, could impact the United States if they spillover into the Chinese financial system. “In China, business and local government debt remain large; the financial sector’s leverage is high, especially at small and medium-sized banks; and real estate valuations are stretched,” the Fed said in its semi-annual Financial Stability Report. “In this environment, the ongoing regulatory focus on leveraged institutions has the potential to stress some highly indebted corporations, especially in the real estate sector, as exemplified by the recent concerns around China Evergrande Group. Stresses could, in turn, propagate to the Chinese financial system through spillovers to financial firms, a sudden correction of real estate prices, or a reduction in investor risk appetite,” the report warned. “Given the size of China’s economy and financial system as well as its extensive trade linkages …