'Full Banking Collapse': China Worries Pile Up As Hedge Funder Sounds Alarm

As the U.S. economy continued to show signs of strength, many investors remained concerned with China’s economic outlook. One hedge funder, Kyle Bass, said China was experiencing a “full banking system collapse” in a recent post on X. 

Bass, who is the CIO of Hayman Capital Management, linked to a recent Reuters article that highlighted some of China’s economic concerns. Debt for the second-largest economy in the world has been piling up with local Chinese government debt reaching more than $12 trillion, or more than 75% of the country’s entire economic output. 

This is up from 62% in 2019. A portion of that debt is issued by local government financing vehicles (LGFVs). China’s central bank, The People’s Bank of China (PBOC), ordered lenders to extend terms and reduce interest rates on outstanding loans to make it easier for LGFVs to pay off their loans. 

But investors such as Bass are not optimistic about China’s outlook. 

“With Local Government debts exceeding $13trillion USD equivalents (90% are in default) and $4 trillion in real estate losses, China only has $2trillion in bank equity,” Bass’s post reads. “U.S. lost $800 billion in the GFC.”

Chinese stocks such as Alibaba Group Holding Ltd-ADR BABA and JD.Com Inc JD have underperformed in 2023. Alibaba is down more than 20% year-to-date, while JD is down more than 50%. In contrast, the S&P 500 is up nearly 20% year-to-date.

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