Kyle Bass says China’s problem is bigger than anyone realizes. Reuters/Rick Wilking
Kyle Bass told CNBC that China’s real estate debt problem is worse than the problem the United States faced in 2008.
China’s real estate sector is so dependent on debt that many public developers are currently in default.
Two Chinese real estate companies have a combined debt of about $500 billion.
China’s overreliance on real estate is pushing its economy into a situation similar to the 2008 U.S. financial crisis, Kyle Bass said on CNBC on Tuesday.
“This is like the US financial crisis on steroids,” said the Hayman Capital founder. “They have bank leverage that is 3.5 times higher than our bank leverage in the crisis, but they have only been in this banking business for a few decades.”
Bass said the years of economic growth China enjoyed before the pandemic were made possible by an unregulated real estate market that was too dependent on debt to expand.
Defaults are currently plaguing the industry, which could cause problems for the country’s entire economy. The real estate sector accounts for about a quarter of the country’s GDP and 70% of household assets.
“The basic structure of China’s economy is broken,” Basu said.
He said almost all listed developers and companies in China have defaulted on their debts. Two of the largest companies, Evergrande and Country Garden, have more than $500 billion in debt. In January, a Hong Kong court ordered Evergrande to be liquidated, and its collapse has heightened concerns about future systemic risks.
By comparison, the U.S. banking system lost about $800 billion in the financial crisis, which was later re-equitised through new capital, Bass said. Chinese authorities have been reluctant to provide economic stimulus like the United States did in 2008.
Bass said defaults are putting a financial strain on local governments, which raise revenue through the sale of land to developers. He added that government bankruptcies are now trailing the real estate market, with the local government debt market worth $13 trillion.
This stress is also reflected in the Chinese market, which has suffered losses of around $7 trillion since 2021. In recent weeks, authorities in Beijing have announced efforts to stem these outflows, but confidence has yet to recover.
“No matter how much regulators say they will ‘protect individuals from illegal short selling,’ China will only get worse,” Bass said, adding, “Regulators will blame short sellers for the 15-year stock market slump.” I want you to imagine doing that.” . ”
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