China’s Banking Sector Raising Concerns

While many are watching its stock market, China’s real problem may lie with its banking system, according to one hedge fund manager.
Kyle Bass, Hayman Capital Management founder and managing partner, told CNBC’s “Squawk on the Street” on Tuesday that Chinese banks will likely experience losses that may affect the country as a whole.

“Those that are watching whether Chinese stocks go up or down aren’t paying attention, in my opinion, to what the real problem is,” Bass said. “And the real problem is the loans in this banking sector.”

The hedge fund manager said that Chinese bank assets rose about 400 percent since 2007, and are now about $31 trillion against an economy with a gross domestic product of $10 trillion.

“When you run a bank expansion that aggressively, that quickly, you’re going to have some losses,” he said, adding that “the scary thing about that” is a “likely” 10 percent asset loss in that banking sector would amount to $3 trillion.


Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza