Kyle Bass Asks If China Is Fine, Why Are They So Worried About "Some Hedge Fund Manager In Texas"

Tyler Durden's picture

If there’s one thing China hates, it’s a nefarious “manipulator” spreading innuendo, and fear in an already nervous market.

When these evildoers are Chinese citizens, the problem is easily solved. Beijing simply arrests them and beats a confession out them or else simply locks them away in the bowels of the Politburo for the remainder of their days. This is what we saw late last summer when Xi moved to crackdown on what the government claimed were multiple bad actors creating volatility and exacerbating the stock market rout.

However, when the “manipulators” aren’t Chinese citizens and don’t reside within the country’s borders, officials have fewer options. Now that a bevy of well known fund managers have the yuan in their crosshairs, China is using the only tool is has to combat foreign “speculators” intent on spreading “information that does not conform to the facts”: the captive press.

China is particularly keen on using the Party’s various media mouthpieces to counter perceived threats to the country and to calm the masses whose nerves are increasingly frayed amid the equity market collapse and the decelerating economy.

Last month for instance, a hilariously absurd “op-ed” appeared in People’s Daily carrying the title “Declaring war on China’s currency? Ha ha.” In it, Beijing calls George Soros - who said at Davos that he’s betting against Asian currencies and that China is experiencing a hard landing - a “financial crocodile” whose “war on the renminbi cannot possibly succeed.”

Of course Soros isn’t the only one waging “war” on the yuan. Kyle Bass is also betting against the currency.

China’s banking system, Bass told CNBC on Wednesday, is a $34 trillion ticking time bomb, and when it explodes, Beijing will need to plug the holes. $3.3 trillion in FX reserves will be woefully inadequate, he contends.

“Very few people have looked at what the cause of the problem is,” Bass begins. “They’ve let their banking system grow 1000% in 10 years. It’s now $34.5 trillion.”

Bass then goes on to note that special mention loans (which we’ve discussed on any number of occasions) are around 3% of total assets. “If they lose 3%, that’s a trillion dollars,” Bass exclaims. Ultimately, Bass's argument is that when China is forced to rescue the banking system by expanding the PBoC's balance sheet, the yuan will for all intents and purposes collapse. This is of course exacerbated by persistent capital flight.

Below, find some other soundbites from the interview. Notably, towards the end, Bass says that if China is right and speculation around a much larger devaluation is indeed unfounded, then it’s curious why China seems to care so much about what “one fund manager in Texas thinks.”

From Kyle Bass:

“The IMF says they need $2.7 trillion in FX reserves to operate the economy. They’ll hit that number in the next five months. Those who think they can burn it to zero and they have a few years ahead of them, they really only have a few months ahead of them.”


“When they lose money in their banks they’re going to have to recap their banks. They’ll have to expand the PBoC balance sheet by trillions and trillions of dollars.”


“No one’s focused on the banking system. Focus will swing to it this year.”


“A Chinese devaluation of 10% is a pipe dream. It will be 30-40% by the end.”


“If some fund manager in Texas is saying that your currency is dramatically overvalued, you shouldn’t care on a $10 trillion economy with $34 trillion in your banks. I have, call it a billion -  it’s so small it should be irrelevant and yet somehow it’s really relevant.”


“If 4% of the population takes out their $50,000 quota, the FX reserves are gone. We lose ourselves in the numbers. $3.3 trillion is a big number, but the reserves to bank assets number is one of the worst in the world.”

Lest you should be inclined to believe Bass, we close with yet another amusing "Op-Ed" from Chinese media, this time courtesy of Xinhua, who will patiently explain why the "doom predictors" always get it wrong on China.

*  *  *

From Xinhua

The first month of 2016 witnessed the Chinese stock market in panic selling mode and the RMB depreciating unexpectedly against the greenback. China's GDP growth in 2015 also hit a 25-year low.

There seems to be a new surge of predictions about the "coming collapse of the Chinese economy and the end of the Chinese model". However, looking back at China's development journey from the late 1970s up to today, many pessimistic predictions, especially forecasting the "China breakdown", have been proved wrong.

In 1996, Lester Brown, an American agricultural economist predicted that China would not be able to feed its large and fast-growing population and economic reforms would lead to malnutrition and hunger.

In the late 1980s and early 1990s, many Chinese pessimists predicted that economic reform without political reform would lead to a total collapse of China. In the Asian Financial Crisis of 1997-98 and the World Financial Crisis of 2007-08, many Chinese pessimists predicted that the Chinese model would not be able to sustain those drastic external shocks.

All those predictions were wrong. Since 2012, China has changed its economic development strategy from export and foreign direct investment driven to endogenous growth which emphasizes internal structural change, innovation and industrial upgrading to escape the so-called middle income trap.

In doing so, China has to eliminate excess industrial production capacity of steel, coal and other environmentally polluting products, and to promote high-end manufacturing, services, urbanization and rural modernization.

Economic slowdown is an inevitable outcome of the new development strategy, but given the tough external economic environment and surging domestic factor costs, China's growth of 6.9% in 2015 was still the best among the world's 10 largest economies except India. In particular, while the Russian and Brazilian economies are contracting sharply, and while many other developed economies are still struggling to move out of their own crisis, China continues to be a potent engine of growth for the global economy.

So why do doom predictors always get it wrong when it comes to China?

Firstly, some pessimists always look at China's short term challenges and ignore its long term development capability and potential. Short term challenges and difficulties are temporal, they can be overcome if the government and the people have a strong will for success.

Secondly, some pessimists do not understand that the Chinese government is far better than they thought, and that political stability is the basic foundation of China's success.

Thirdly, doom predictors of China underestimate the ability and determination of the Chinese people who are not only hard working and intelligent, but also resilient to all kinds of challenges and shocks.

China today is different from its past. The economy is well above 10 trillion US dollars, second only to the US, twice as large as Japan, and four times as large as India. A 6.9% growth is more than one-quarter of India's annual GDP, and bigger than a medium-sized economy in the world.

China's richest city, Shenzhen, erected from a small fishing village in 1980, now has a population of over 10 million people. Its per capita GDP is higher than that of Taiwan and is still growing at nearly 8% per year. China's biggest city by population, Chongqing, has over 30 million people. The city's GDP expanded by 11% in 2015 and the government's plan is to achieve 10% growth in 2016.

The Chinese economic fundamentals are sound and robust: unemployment rate is low, people's incomes are growing faster than GDP, income inequality is narrowing and energy intensity is declining.

If those pessimists were in China, they would see that all the Chinese regions are still ambitious in making their 13th Five Year Plan, which is to sustain China's economic growth at a much higher rate than many other economies in the world. The policy objective is to build an all-round well-off society and to eliminate absolute poverty by 2020.

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Soul Glow's picture

They're fine.  China is fiine!

Father Thyme's picture
Father Thyme (not verified) Soul Glow Feb 4, 2016 7:36 PM

You be careful, round-eye, or we Bass Pro Chop!

BoNeSxxx's picture

how many nickels would = $3.3 trillion yuan?

tankster's picture

Hope this shit sounds a Lot better in Mandarin.

tc06rtw's picture

 …  If only there weren’t  so  damn  MANY  OF  THEM !

Uchtdorf's picture

Kyle lives in Texas. Need I say more?

Zero Point's picture

In communist China, funds hedge YOU.

ThroxxOfVron's picture

"The policy objective is to build an all-round well-off society and to eliminate absolute poverty by 2020. "


Does anyone think they over-sold it just a little bit??

Bokkenrijder's picture

"But the Chinese are sooooo smart because they have a few ounces of gold!"

All that supposed gold that they have (do they really have it?) will be vaporized during a crisis, just like those 3,3 trillion in FOREX reserves.

Why? Simple: Chinese are compulsive liars, frauds, cheaters and manipulators, (from fake Rolexes to manipulating GDP growth numbers) and when it comes crashing down we should all run for cover!

Sure, the Chinese can hide their gold somewhere in their 'dark room' financial sector or among the population, but then the government can't use it either. It's like getting robbed in a dark alley, but you've hidden your gun at home under the pillow. Once the gold surfaces, it will neatly flow back from East to West.

I wouldn't be surprised one bit if all that gold was not bought by the Chinese Central Bank/government, but instead bought by corrupt officials (hint: hasn't the gold price dropped significantly since Xi's crackdown on corruption?) and shady businessmen, and is back in Western vaults (ready to be re-hypothicated?) after being smuggled out of the country.

SWRichmond's picture

If Bass wants to corner a market, why doesn't he buy COMEX gold (300:1 naked shortiness) and then stand for delivery?

  1. Because he knows it isn't a market, and that even though he would be right he would lose because the COMEX would settle in cash, then the IRS would start auditing him.
  2. Because he has accepted a seat at the table and become an agent of the USG and the banking elite, fighting their economoc wars.  He aspires to be Soros-like, start picking Presidents, overthrowing countries, etc.  In other words, STARTING WARS.
  3. Because he's just another greedy (redundant) sociopathic talking his book.

These guys are destroyers, plain and simple.  Once they have thrown giant nations into chaos, they will sit safely back and enjoy their ill-gotten gains WHILE YOUR CHILDREN GO OFF TO WAR, YOU LOSE YOUR HOUSE AND YOUR JOB AND START WONDERING WHERE YOUR NEXT MEAL COMES FROM.  These guys are far more dangerous than politicians.  I appreciate ZH reporting on their activities.  Where is Madame Defarge?

Son of Captain Nemo's picture


Thank you for the best post on this read!


RaceToTheBottom's picture

So, in summary, he is a Financier....

Can't argue with that....

Son of Captain Nemo's picture

So, in summary, he is a Financier....

Can't argue with that....

Let me fix that for you... Kyle Bass is a "financier extraordinaire" who is both morally and ethically corrupt courtesy of the post-Glass Steagall system he exploits that no longer has any boundaries for fraud and malice in the Western World of financial management.

Not exonerating the Indians and Chinese for the deal they made with the "devil" post-9/11...But that doesn't mean you can't observe the behavior of the U.S. demolition wrecking crew both financially and militarily to the rest of the World!

Because In the end it will destroy also the Kyle Bass' and George Soros' as well!

RaceToTheBottom's picture

Too wordy.  

But agree that Glass-Steagall is the Cannary in the Coal Mine.


Everything else including Dodd-Frank was a smokescreen.


"Free Corzine"

"Reinstate Glass-Steagall"

"Fuck Greenspan/Bernake/Yellen"


People should sign off every post with those three points.

Joe Trader's picture

Great article - so this puts Bass against Peter Schiff's long yuan theory. BTFD USD edition.

Donald J. Trump's picture

China will implode more than 30-40%.  They printed $34 trillion and sent it all over the world buying hard assets all while pegging their currency.  They really pulled one over on the rest of the world.

Wild Theories's picture

that's US dollars they are using to buy stuff all over the world with.

they didn't print that, you did.

I need more asshats's picture

What does Bass know? He's long oil. HA!

The best Sun's picture

This headline could have more accurately read,

"Kyle Bass spreads self-serving lies from his puss filled mouth."

He smells fishy to me.

IronShield's picture

Perhaps that's your upper lip?

The best Sun's picture

So at least 27 "people" don't understand that these fucks trash talk what they want to own,

or cup the balls & stroke the shaft of anything they are about to sell.

Like T.Boone Pickens did with oil?

Fine with me, trust the smarmy fuck of a hedge fund hyena.

How could that ever go wrong for you. Dupes.

dogfish's picture

I think some jews are named after fish,Salmon Pollack Bass.

Donald J. Trump's picture

That's on top of what every other country gave them in trade imbalance.  Also, if the Chinese say $34T, it probably more like $75T.

Donald J. Trump's picture

And now they are buying the Chicago stock exchange, need I say more?

CheapBastard's picture

Are there any 'Politburo' left in China? I thought most are in California or Vancouver or Seattle by now.


jcdenton's picture

Okay, so PRC printed this ..



$34 T? And, it is all converted to hard assets? Am I getting this right? And that is for ~1.4 B population.

Has anyone informed Bass about a country with $18 T economy, and ~32.8 T in its treasury? (not printed from the Fed. [even though they stole 4.5 T* of it {QE1 - 3}] Real money earned via hard work. By an American, for the American people.) And what is the current population of the USA?  So, per capita, who is richer? ** (Read Me First)

Either Bass is playing dumb, or is it he is just plain -- dumb? (aka [highly] educated moron. taking too much advice from some really shady people.)

Oh, and Trump? I have credible reasons to believe Trump is being secretly advised by Wanta. Wanta is advising Putin. He is assisting Greece. Soon Germany and Italy. He has already helped America. Most just don't know it yet .. ***


* (Bonney et al are basically mafioso lawyers; since 2011 the 32 T has become 33 T. [interest sitting in the bank] this payout never apparently happened as promised. My understanding, the mafioso lawyers are all either dead, self exiled, or in prison/mental institutions due to dementia. [like Sundquist and Songstadt]) This whole idea that the Fed just prints money out of thin air is a cover story. They don't print anything out of thin air. They just steal from someone else. This is what criminal organizations do. That is all they know how to do.

** And we will be even richer when we get rid of much egalitarian policy we have suffered for the last 1/2 century ..

*** You just don't give a sovereign; one $30 B, and others $5 B each. All that without some instructions and/or say -- advice. In this world, you don't get/give something for nothing ..

(search $30 billion, then $5.0 billion)

Cognitive Dissonance's picture

"They're fine.  China is fiine!"

I think you meant to say..."They have fine China".

I bought some 'Made-in-China' dinnerware at WalMart last week and it is exquisitly fine China.

DownWithYogaPants's picture

I buy "fine China from china" to play frisbee with

mkkby's picture

China's $3 trillion in reserves is nothing compared to the fraud and waste in their system.  Anybody remember those vacant cities?  Each one likely cost a few trillion.

If anybody opened the books that 3 trillion would vaporize in seconds.  Bass and Soros are right.  That doesn't mean they won't lose their shirts before the crash.

Markets can remain irrational a lot longer than you can remain solvent.

seek's picture

They need to borrow a line from a nearby island: "Please do not worry."

gmak's picture

And Islam has been part of China since the beginning 3,000 years ago.

I need more asshats's picture

Sch-peal-berg should do a moooovie about it! We luv the moooovies right kids?

We pay the joos to brainwash us. What fun.

azusgm's picture

"And Islam has been part of China since the beginning 3,000 years ago."

Absolutely, Barry. Whatever you say is always true.

Iwanttoknow's picture

you must be a veteran china watchers.

omi's picture

Because when all western media creates information field of problem in China, elites in China will behave accordingly.

Amalgamated Tang's picture

What about all of the Chinese gold? If gold resets to $50K, aren't they covered? Inflation saves all debtors, no?


TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) Feb 4, 2016 7:38 PM

If 4% of China's population has $50,000 to move outside the country I would think their economy is doing quite well actually. Do 4% of Americans have $50,000 in liquid assets?

SmedleyButlersGhost's picture

percentages are a mugs game. How much in absolute dollars do the top 10% of Americans have in liquid assets, the top 1%, the top .01%.

TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) SmedleyButlersGhost Feb 4, 2016 7:53 PM

Yup, wealth tends to be very concentrated.  Handful of filthy rich and a bunch of people living hand to mouth waiting for a trickle down

asteroids's picture

I think China is concerned about full scale riots should their economy implode overnight and millions of "middle class" find themselves paupers.

AbbeBrel's picture

"It is said that if you have $10 in your pocket and no debt, you are better off than 25% of adult Americans."

from the "2015 Year In Review - Scenic Vistas From Mount Stupid" by Collum.

zerotohero's picture

Ancient Chinese secret - some hot shot

Tejano's picture

Let's take another look in 2049.

Bull Bear Nice Pair's picture

China issued warnings to speculators because they probably remembered the lessons from the 1997 Asian financial crisis very well. During that crisis, several Asian countries' currencies were attacked by speculators, which greatly worsened the crisis. This time around, however, China has enough mettle to fight speculators to the end.