Hedge Fund Boss Warns China's Real Estate Collapse Could Outpace US Financial Crisis

The Chinese economy is facing a crisis that could potentially be more severe than the 2008 U.S. financial crisis, according to hedge fund manager Kyle Bass. The ongoing real estate market collapse in China could have significant repercussions, Bass warned.

What Happened: In a recent interview with CNBC, Bass, the founder of Hayman Capital, expressed concerns about the Chinese economy’s overreliance on the real estate sector, reported Business Insider.

“This is just like the U.S. financial crisis on steroids,” Bass said.

He pointed out that China’s banking leverage is nearly three and a half times greater than the U.S. had before the 2008 crisis.

The real estate market, which was largely unregulated and heavily reliant on debt, was a key driver of China’s double-digit economic growth pre-pandemic. However, with defaults becoming widespread, the country’s broader economy is now in jeopardy. The real estate sector accounts for approximately a quarter of China’s GDP and 70% of household wealth.

According to Bass, virtually every public or listed Chinese developer is currently in default. This includes major players like Evergrande and Country Garden, who collectively hold $500 billion in debt. The potential collapse of these companies could lead to systemic risks.

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China’s banking system has already seen a $7 trillion fallout since 2021, and the stress is also evident in the local governments, which rely on land sales to developers for revenue. This has led to significant financial strain, with local government debt amounting to $13 trillion.

Why It Matters: The Chinese economy’s reliance on the real estate market has been a cause for concern for some time. The recent collapse has sparked fears of a widespread financial crisis, potentially impacting global markets. This comes at a time when top U.S. Treasury officials are visiting China to discuss economic policies amid the country’s economic instability.

China’s economic challenges also come amid projections that the country could overtake the U.S. as the world’s top economy by 2037. However, the current crisis could significantly alter these projections if not managed effectively.

This crisis is not new. The Chinese government has been trying to curb the crisis, but the market collapse resumed in January.

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