China's banking system is collapsing, and the real estate crisis in the country could end up wiping out $4 trillion from its financial system, according to veteran investor Kyle Bass.

In an interview with Andrew Ross Sorkin on CNBC on Monday , the Hayman Capital Management CIO pointed to China's property sector, which has been reeling in recent years as debts from major property owners sour and some firms default on their bonds. The real estate crisis has left enough empty homes in China to house 3 billion people, a former top Chinese official said, and the flood of unused supply will generation huge financial losses in the real estate sector.