Kyle Bass, founder of Hayman Capital, has issued a stark warning about China’s real estate market, likening the country’s situation to the US financial crisis of 2008. In an interview with CNBC, Bass described China’s property debt as a more severe version of the 2008 crash.
According to Bass, China’s reliance on real estate as a driver of economic growth has led to a dangerous level of debt accumulation. The country’s real estate sector, which constitutes a significant portion of its GDP and household wealth, has become overly leveraged, with many public developers now facing default.
Bass highlighted that nearly every publicly listed Chinese developer is currently in default, with giants like Evergrande and Country Garden collectively holding a staggering $500 billion in debt. The collapse of these companies, particularly Evergrande, has raised concerns about systemic risks to China’s economy.
Comparing the situation to the US financial crisis, Bass noted that China’s banking system is now three and a half times more leveraged than the US was in 2008. While the US banking system lost around $800 billion during the crisis, Chinese officials have been hesitant to provide significant stimulus measures to address the mounting defaults.
The ripple effects of the real estate crisis are also being felt in local governments, which heavily rely on land sales to developers for revenue. With defaults increasing, government bankruptcies are becoming a reality, further exacerbating the economic strain.
Chinese markets have seen significant fallout, with approximately $7 trillion wiped out since 2021. Despite efforts by Beijing authorities to stabilize the situation, confidence remains low.
Bass expressed skepticism about the effectiveness of regulatory measures, particularly in addressing short selling activities. He believes that China’s situation is likely to deteriorate further, regardless of regulatory interventions.
In summary, Bass’s warning underscores the severity of China’s real estate crisis and the potential implications for its broader economy. As the country grapples with mounting debt and defaults, the path to recovery remains uncertain.
