Appearing on podcast Forward Guidance last week, Hayman Capital founder Kyle Bass gives his take on everything China, and drops a bombshell hypothesis on China’s stringent Covid-19 restrictions.
Bass, a well-known China hawk, is stipulating China’s economy isn’t faring as well as the Chinese Communist Party is making it out to be. The US hedge fund manager dug into the country’s real estate sector— which makes up 40% of the economy— calling it a plethora of “riverboat gambling” that sent median home prices 36 times higher than median incomes. “Just to put these into perspective, in the United States, median home prices got to be just over six times median income when our subprime crisis collapsed,” Bass estimated. Theoretically, it would take over 30 years for a working-class Chinese individual to save up enough money to buy a home.
According to Bass, the ongoing collapse of China’s property market is an intentional doing by President Xi Jinping. With housing prices so high, Chinese men are unable to move out of their parent’s home and start a family, causing the country’s birth rate to drop. “What Xi figured out is the average birth rate of the average Chinese woman has dropped from over 2.1 to now 1.2,” Bass said. “The birth rate started collapsing, and we all know the demographic curve of China looks terrible because of the one-child policy, but this supercharged the problem.”
Xi is attempting to reverse China’s worsening demographic problem by making family formation more accessible. “Xi decided to squash real estate. He knows it has to come down and stay down,” Bass added. “That why every single Western lender into a Chinese real estate firm is gonna get something that rhymes with hero in return.” Bass goes on to stipulate that China operates in two “completely separate spheres,” with one driven by the domestic renminbi, and the other being the communist party’s interface with the western world; this is made evident by Xi’s Covid-19 policy, which is portrayed very differently to foreign onlookers.
Despite it appearing as if China is going to let its guard down on stringent Covid-19 policies and reopen for economic business, the communist party has ulterior motives. “Key [Chinese] officials are really starting to signal ‘okay we are just going to back down from Zero Covid and we’re going to reopen and everything is going to be fine’— I’m just telling you this isn’t going to happen,” stipulated Bass. The Hayman Capital founder then delved into a statistical exercise using downloadable data from the World Health Organization— that, according to him, heeds a very interesting outcome.
“Let me take you down a rabbit hole that’s super interesting,” Bass begins. To isolate for a purely Asian genome, he took publicly accessible Covid-19 data from the World Health Organization and subtracted Middle Eastern countries and India from the Southeast Asia data set and then added China. “While I was doing this exercise, something very interesting happened,” he said. “One of the columns on the Excel spreadsheet was deaths per 100,000… that’s super interesting because what that does is normalize the data against the population cohort.”
He went on: “if you assumed a linear distribution of deaths across the world, you would have achieved a number that was exactly ten times the number that the Asian genome produced. The only thing you could infer from this data is one of two things: the number of deaths in Asia are dramatically understated by a factor of nine or ten, or, the disease is designed to affect different genomes in different ways.” Bass infers that China’s financial wellbeing was rapidly sliding with current accounts going negative, Chinese nationals leaving the country and spending money everywhere else but domestically, all meanwhile protests in Hong Kong were erupting at the end of 2019.
“And what happened? Magically, a disease, a virus showed up in the perfect time to save their current account, and to allow them to move into Hong Kong without tanks and guns— it happened perfectly,” Bass explained. “So, I don’t believe they’re ever going to allow China to fully reopen; I don’t believe they’re ever going to allow their population to travel as freely as they’ve traveled once before.” Bass points out Xi’s Politburo exit where the communist leader announces heightened focus on internalizing the country and reunifying China and Taiwan. “He is battening down the hatches,” he continued.
Bass believes Xi will never reopen China because it would otherwise cause the country’s current account to lose funds. “This is a setup for war— he’s installed a war cabinet, he’s removed every technocrat from the markets that were there, he removed the head of the PBOC, he removed the head of the CSRC, he removed the finance minister— it’s game time guys, it’s clear as day what’s about to happen.”
Information for this briefing was found via Forward Guidance and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
