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Kyle Bass told CNBC that China's real estate debt is an even worse version of the 2008 U.S. financial crisis.
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The country's real estate sector is so dependent on debt that all public developers are currently in default.
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Just two companies have $500 billion in debt. In 2008, the U.S. banking system suffered total losses of $800 billion.
China's over-reliance on real estate is causing the country's economy to slide toward the financial situation it was in in 2008, Kyle Bass told CNBC on Tuesday.
“This is like the US financial crisis on steroids,” said the Hayman Capital founder. “They have 3.5 times our bank leverage in crisis. And they've only been in this banking for a few decades.”
Basu noted that the years of double-digit growth China enjoyed before the pandemic were made possible by an unregulated real estate market that made it too dependent on debt to expand.
Defaults are currently plaguing the industry, which poses major problems for the country's overall 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 summed up.
In fact, virtually all Chinese listed or listed developers are currently in default, he said. Two of the largest companies, Evergrande and Country Garden, have $500 billion in debt. The former was recently ordered to be liquidated by a Hong Kong court, and its bankruptcy has heightened concerns about future systemic risks.
By comparison, the U.S. banking system lost about $800 billion in the Great Financial Crisis and was later re-equitised with new capital, Bass outlined. However, Chinese authorities have been hesitant to implement large-scale stimulus measures.
Debt defaults have led to fiscal strains for local governments, which generate revenue through the sale of land to developers. Government bankruptcies are currently trailing the real estate market, with the local government debt market worth $13 trillion, Bass said.
This stress is clearly reflected in the Chinese market, which has suffered losses of $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 is going to get much worse,” Bass said. “Imagine regulators blaming short sellers for a 15-year slump in the stock market.”
Read the original article on Business Insider
