As China grapples with a real estate and banking crisis and a demographic disaster, where is China’s economy headed? What kinds of calculations is Chinese leader Xi Jinping making vis-à-vis Taiwan?
In this episode, we sit down with Kyle Bass, founder of Hayman Capital Management and a founding member of the Committee on the Present Danger: China.
Watch the clip:
What are the dangers of the Chinese central bank digital currency? And what’s in store with the upcoming Taiwan election?
🔴 WATCH the full episode (47 minutes) on Epoch Times: https://ept.ms/S0111KyleBass
FULL TRANSCRIPT
Jan Jekielek: Kyle Bass, such a pleasure to have you back on American Thought Leaders.
Kyle Bass: Great to be here, Jan.
Mr. Jekielek: We’ve been getting signals for some time that things are not going well for the Chinese Communist Party-run economy in China. Please give us a picture of what is going on.
Mr. Bass: Okay. That’s a big open-ended question, but I'll attempt to answer that. It’s important to think back to what drove the China miracle. If you look at how China financed itself and its GDP growth, it was almost solely from real estate speculation, with real estate prices rising, and local governments selling more real estate to fund their operating deficits.
It was a very procyclical cycle of rising values, more speculation, and more sales from local governments. That created an economy for the average Chinese citizen where 70 percent of all of the assets in China were invested in real estate. What that miracle produced was meteoric GDP growth and all the concentric circles that surround it.
Both you and I know, and those people that follow China closely understand, the birth rate of the average Chinese female has dropped to 1.2. It requires a birth rate of roughly 2.1 to sustain a population, so we’re seeing a pretty significant decline in the population. Those two things are inextricably linked.
The median home price got to be 20 times north of the median income, for instance. The U.S. in all its subprime greatness. It only got to six times higher. In China it was over 20 times higher. Today it is about 17 times higher in the tier-1 cities. That means Chinese men can’t afford to buy new dwellings when they come out of university. They’re not having sex, they’re not marrying, and they’re not having kids. The birth rate collapsed when real estate speculation got to its zenith.
A couple of years ago, Xi Jinping said that financial security is national security. He basically stopped real estate speculation, because he realized too late that it had created a real problem in the architecture of the Chinese economy.
Today, every single public real estate company and developer in China is in a state of bankruptcy or default, most of the private ones. With the $13 trillion local government-financing vehicle market that either sold bonds or borrowed money from banks to run their operating budgets outside of real estate sales, the majority of that market is not paying.
In fact, it got to a point in late October of 2023 where the PBoC [People’s Bank of China] said, “In our next set of bank reviews, any local government financing vehicle loans that are non-paying will be deemed to be paying, and it won’t affect your bank rating.” That was a public statement made by the PBoC.
When you look at what created China’s miracle, it’s now the exact opposite. They’ve got almost 400 percent banking leveraged to GDP. They’ve got a scenario where they’ve got youth unemployment at a minimum of 25 percent, and the gray market says 40 to 50 percent of youth can’t find jobs.
In a speech on New Year’s Day, Xi Jinping actually admitted that youth unemployment is a real problem. He actually inexplicably decided to declare that China’s economy is actually having problems and he declared that publicly. As you know, they don’t normally do things like that.
You have a scenario where real estate isn’t going to bounce in China. It can’t. Xi Jinping has to get that ratio back down to a number that allows population growth. Again, this is the unintended consequence of allowing a market to run unchecked.
You’re seeing a banking crisis. You’re clearly seeing a real estate crisis. Banks have a third to 45 percent of their assets in Chinese and Hong Kong real estate loans. You’ve got the perfect economic storm hitting China at a point in time where the geopolitical tensions in the world are at a multi-decade high. I think they’re in real trouble.
Mr. Jekielek: For the layperson, it may be difficult to understand how the Chinese economy could grow over the last several decades purely on real estate speculation. Also, there has been significant Western investment in the Chinese economy during this time. Can you encapsulate this for us? Why are all these companies in default?
Mr. Bass: That’s a great question. When you think about China Inc., you have to think about it in two spheres. You have to think about their domestic marketplace, where their banks are, where their capital markets are, and how it operates with the RMB [Renminbi] or the yuan. That market is a state-controlled operation. As you know, it’s a totalitarian government. They have their own version of capitalism with Chinese characteristics, and we will get into what that means.
The point is they can control that marketplace if they control their own currency printing, because they still have a closed capital account with the world. We give them the benefit of the doubt of the conversion of RMB at a spot rate in dollars. Imagine if China were to abandon its great wall around its capital and allow the average citizen in China to invest abroad, to travel abroad, and to spend abroad.
If they just opened that capital account, what would happen? The RMB would drop 40 or 50 percent, and their GDP in dollar terms would actually drop 40 or 50 percent. Do you see what I’m saying? We’re giving them the benefit of a conversion rate of a contrived number, because they have a closed capital account.
This is how they do it. If you allow your RMB-based marketplace to grow unchecked in real estate and you plug the holes in the banks with more RMB, you can create a significant domestic inflation number of assets, which they did. When they report GDP, they take the RMB/GDP number, and convert it at a closed capital account spot rate into the dollar. We give them the benefit of the doubt on that conversion. We say, “Wow, in the last 15 years, they’ve grown over 500 percent GDP in dollar terms.” That’s because they still have a closed capital account.
You mentioned that we’ve seen significant cash flows into China. We believe through the passive indices of the Bloomberg US Aggregate Bond index and the MSCI World index that there is $2 trillion of passive capital in dollars that has gone into China, again, at that artificial rate.
China grew a market unchecked in a speculative frenzy of real estate and reported GDP. Then they constructed a narrative around how you must invest in China. They said, “Look at how fast we are growing. We’re growing double digits every year. You would be stupid not to invest here.”
Then the dollars flowed in. That was the Chinese government’s way of very quickly becoming influential on the world stage from an economic perspective, when it had actually been somewhat of a Potemkin village. We’re seeing that now. I know all of this sounds like hyperbole, but it’s exactly what happened.
Mr. Jekielek: What do those returns on that $2 trillion look like through the passive indices? That is a 505 percent growth. Who wouldn’t want that?
Mr. Bass: Correct. If I told you of a country that had a capital market that you could invest in and buy stocks and that was going to grow 500 percent in the next 15 years, and I knew it for a fact, you would probably put all your money there. But the interesting thing is today you have now lost a third of your money. If you invested in China and the Shanghai Shenzhen 300 index 15 years ago, you’re down about 33 percent. They ask, “But what do you mean? I thought China had an economic miracle.”
It was, but it was an economic miracle with Chinese characteristics, and to the benefit of the Chinese Communist Party and their leadership. It is fascinating to me that you still have relatively educated folks that are fiduciaries and asset managers that have fiduciary responsibilities to their clients, still allocating capital to a communist-run country that has a limitless partnership with the world’s number one war criminal, Putin.
Mr. Jekielek: Once you set a policy in place, it’s very hard to change that policy, for whatever reason. That is indeed the case with U.S. foreign policy towards China, even if there is discussion of decoupling from the CCP. Actually, the CCP is decoupling on its own terms and at its own convenience. Can you speak to that?
Mr. Bass: Yes, some are convenient to the CCP. But I see China decoupling from a position of extreme weakness over the last 15 years. They’re in a very precarious position because China imports 12 million barrels of crude oil a day. They are the largest importer of crude oil in the world, in a world market of roughly 101 million barrels a day. They import 8 Bcfs [Billion cubic feet] a day of LNG [Liquified natural gas] in a world market that is 53 Bcfs daily. They are the largest LNG importer in the world. They import 40 percent of their food.
All three of those things that they must import on a daily basis require dollars to purchase. It could be dollars, euros, yen, pounds, or other western currency, but it’s all priced in dollars. They have an insatiable need for dollars.
If you are Xi Jinping and you are implementing new anti-spying laws, and if you’re implementing policies that completely restrict the macro/micro level data export from mainland China to the West, you would never cut off data flows and increase your militaristic belligerence from a position of weakness, unless it was your only option.
The moves that Xi Jinping has been making in the last 12 months show you that, number one; he is in real trouble. Number two, just let me ask, “To distract the population, what do you think the natural place for him to move to would be to foster a sense of nationalism?
You and I have seen these videos that the PLA [People’s Liberation Army] has put together on the unification of China and Taiwan. As we record this today, we are five days before the Taiwanese elections. The DPP candidate is anywhere from 3 to 12 percent ahead, depending on which polling you look at. But in post-election Taiwan, all bets are off as to what Xi Jinping is going to do.
You’re going to see a number of restructurings and you’re going to see even more economic pain. You’re going to see Xi Jinping try to change the narrative to stay in power. If that is the case, Taiwan is in real trouble. If that is the case, the West’s relationship with China and investment into China is in a very precarious place today.
Mr. Jekielek: I want to talk about their economy. I also want to talk about Taiwan and the implications of where it might go. But 505 percent growth over 15 years and then a loss of a third on a yearly average doesn’t make sense.
Mr. Bass: It doesn’t make sense. That’s called investing with Chinese characteristics. That begs the question, “Who got the money?” The Westerners didn’t get the money. In fact, some of that GDP growth was contrived, as I mentioned. With the real GDP growth, did it go to investors in dividends or capital gains? There actually were years in which the Chinese market did well, but over a 15-year period, you’ve lost a third of your money.
When I think about where the money went—it went to the government. If it didn’t go to the government, it went to the management teams who lie, cheat, steal, bribe, or all of the above. That is the modus operandi of the Chinese Communist Party.
When China implemented the national security law and took over Hong Kong at the end of 2019, what has the Hong Kong Hang Seng Index done since China implemented that law? It’s down 40 percent. You have lost money every year for the last four years if you stayed invested.
Communism doesn’t pay, it just doesn’t. It never has, and it never will. It pays for short periods of time, because everyone gets very excited about some stimulus measure that Xi Jinping might be implementing. In the long run, we in the West are the suckers, and we’re making sucker bets.
Mr. Jekielek: Just as a comparison, how did the U.S. economy do over those 15 years in terms of returns as well as growth?
Mr. Bass: The U.S. has about 4 percent of the world’s population. We are a quarter of the world’s GDP, and we are 40 percent of the world’s capital markets. That is super interesting. We have the deepest, most liquid, most trusted capital markets in the world. The U.S. GDP has grown 72 percent over a 15-year period. If you had invested the same money 15 years ago in the S&P 500, instead of the Shenzhen Shanghai Composite, you’re now up 335 percent in your investment in U.S. indices of the S&P 500.
Everyone got excited in 2001 when China ascended the WTO [World Trade Organization], and we gave them a pass to do it early. They didn’t meet the requirements. But as their GDP started growing, there was such an excitement about investment in globalization, with everybody becoming wealthier and things getting cheaper.
In the end, there wasn’t a free lunch. In fact, the Chinese ate our lunch, they took our money, and you didn’t make anything. It’s a lesson in economics and geopolitics. Sooner or later, everyone is going to figure out this lesson.
Mr. Jekielek: People talk about de-dollarization, the emerging BRICS [Brazil, Russia, India, China, South Africa] market, and the Chinese central bank digital currency, the digital yuan. Before we go there, how many trillion dollars did we add into the economy by printing money?
Mr. Bass: The Fed’s balance sheet expanded by $5 trillion. Broad money in the U.S. expanded by 40%.
Mr. Jekielek: I was going to say $6 trillion. One trillion is an unfathomable number in itself.
Mr. Bass: You need to put that into context too. From 1972 to 2008, the Fed’s balance sheet expanded from roughly zero to about $940 billion. From 1972 to 2008, prior to the global financial crisis, the Fed’s balance sheet expansion was under $1 trillion over that timeframe.
From 2008 to 2019, we went from just under $1 trillion to $4.5 trillion. We were able to pull about a half-trillion off the balance sheet going into 2020 and Covid. But in 2020, we went from roughly $4.1 trillion to $9 trillion.
If you look at the timeline, we’ve gone parabolic with our monetary policy in a very, very short period of time. We can get into the de-dollarization and the rest of the world, but that’s all just a CCP narrative.
Mr. Jekielek: The U.S. economy is much less stable and powerful than it was before this parabolic rise you are describing.
Mr. Bass: That statement is true in itself, except that the rest of the world has that same convexity or worse to their economy. i.e., we are still the bellwether economy with the most strength of any economy in the world. But we are less stable than we were pre-2008 and pre-2020, because we’ve had to react by flooding the system with money.
Mr. Jekielek: Could Xi Jinping be waiting for some kind of large-scale crash? What is your thinking around that?
Mr. Bass: I don’t think so. Given their parasitic relationship with the West, and given their leverage levels, the worst thing that could happen to China today is a U.S. crash. Let’s do a quick look around the world as to where the world’s reserve assets might go. You have the most liquid, deepest capital markets in the world in the United States, which still has the rule of law. Would you invest in Europe? Let’s take a look.
The European Union [EU] still doesn’t have a central taxing authority and they don’t have a unified fighting force. It’s still just a great idea. The EU has not actually been implemented into a proper union. We still have an Italian army and a French Navy. We still have all of these things that make no sense whatsoever. The Euro is not a currency where real reserve managers are going to go.
In the last 15 years, how much have the 27 EU countries grown? They have grown 7 percent. Over 15 years it’s basically flat. Again, it is not a place for exciting investment. If you look at the construct of their economies, the state is playing a larger and larger role, and private enterprise is playing a smaller role. It’s not a role model for capitalism.
Then you’re not going to invest your money in Europe. Are you going to give it to China? We just discussed this—you can’t do that. Where else in the world would you go, Canada or Australia? They’re both way too small of a market to do it. Would you invest in the UK? The UK has really stagnated for the last several years.
Basically, there isn’t a place for real reserve money to go except for the United States. I don’t buy this de-dollarization story. Again, that’s a narrative pushed by China, Russia, and Iran on social media. There is no other place for the money to go. Look at Bitcoin. Bitcoin is really just vapor. It doesn’t have anything behind it whatsoever. It’s really just a sunny place for shady people, and that’s the way it’s going to stay.
Mr. Jekielek: There is gold, correct? It has surged to record levels recently, perhaps for all the reasons we’ve just been describing.
Mr. Bass: You could add up all of the gold that’s ever been mined, forgetting about how much of it has gone into dowries in India and things like that. Let’s just assume that all the gold that’s ever been mined in the world is sitting there, and we can engage in a gold-backed currency again, which would actually be a disaster. But let’s assume that we can. There is about $8 trillion worth of gold that’s ever been mined in a global financial system of greater than $90 trillion. You just can’t do it.
There is no functional alternative. When you think about BRICS, are you going to allocate your capital to these countries? Just think about who you’re looking at—Brazil, Russia, India, China, and South Africa. You'd have to be a lunatic to put your hard-earned reserve assets or your savings into the buckets run by those people.
India has actually said that they will not join a BRICS currency union. But Argentina now has said they’re in. I’ve never met a born again Christian on their prom night. The same goes for Argentina? They have taken their currency from 17 pesos to the dollar just a few years ago, to today, where it’s 500 or 1,000 to the dollar. It has been completely wiped out.
Boom, that’s when Jesus, the savior, pops up and then you say, “We will join that union.” If you take India out and you add Argentina and you reorganize the letters, they’re the bottom feeders. They’re the crabs.
Mr. Jekielek: These are the high-risk markets.
Mr. Bass: You can call them high risk, or authoritarian, or war criminal. I don’t know what you want to call them, but investing in BRICS currency is not going to attract real reserve assets, in my opinion.
Mr. Jekielek: Getting back to China and Taiwan specifically, you mentioned all bets are off after the election. Do you mean irrespective of who wins? Please give us a picture of what you’re imagining here.
Mr. Bass: Yes. When you look at Taiwan, you see China ratcheting up and every year moving the goalposts closer and closer to China. Even in Xi Jinping’s New Year’s Day speech, he said that Taiwan will be unified with China, and that the people on both sides of the Taiwanese Strait should embrace this new great rejuvenation of the Chinese race. That is code for, “We are going to take you, peacefully or not peacefully. It’s up to you.”
If you’ve noticed, in the last 30 days, there have been 23 separate balloon incursions flying right over Taiwanese military bases. That is an effort to engage in psychological warfare, to directly invade Taiwan’s airspace, and to monitor Taiwan’s level of readiness at their military bases.
Going into the election, China has increased its belligerence and has increased its psychological warfare operations. I did a very detailed presentation for the Hudson Foundation on what China has done to prepare for war in the last few years. It looks like it’s on a one-way trip to a physical conflict.
I would say that post-election, all bets are off. The DPP candidate has had a lead in these elections as high as almost 20 percent. Today, it’s somewhere between 4 and 11 percent from all the polling that I see. But when you poll the average Taiwanese person, there’s an 85 percent polling that says they want nothing to do with Chinese rule. They just watched the movie play out in Hong Kong and it didn’t end well, and they don’t want to see a replay in Taiwan.
The people of Taiwan do not want authoritarian, Marxist-Leninist Chinese rule. They want to continue the status quo, but Xi Jinping is not going to have that. He said that his life’s mission is the reunification of China and Taiwan. He’s just over 70 years old, and he doesn’t have that much time left. He has told his military forces to be ready by 2027. That’s less than two years from now.
I’m not sure what you think about this, but he will not tell you when he’s going to invade Taiwan. He’s not going to give us a fair warning. It’s just going to happen all at once. If I tell you that it’s sometime between now and 2027, that’s still a terrible outcome for the world.
Yes, it’s inevitable. If the KMT candidate wins, that gives China a little bit more breathing room to engage in a soft takeover instead of a hard takeover. We'll see what happens there. But I still think the DPP candidate will run away with this election.
Mr. Jekielek: That is the psyop. The Taiwanese think, “It’s inevitable. Look at all the Chinese aggression. We might as well accept our fate and better terms for us.” This is what they’re hoping for.
Mr. Bass: Yes. What’s interesting though, the Taiwanese people understand A, what’s at stake, and B, what Chinese psychological operations are. When polled, they all say that they want nothing to do with Chinese rule. It’s only the old, wealthy Taiwanese people that have such strong ties to China that say, “Yes, we want Hou Yu-ih for president. We want the KMT. We want Beijing’s preferred candidate to win.” The population writ large is going to have William Lai win this election.
Mr. Jekielek: We in the West take freedom for granted. For the Taiwanese, this is not an academic question anymore.
Mr. Bass: Yes, and they know this. For instance, in the last 2 quarters of last year, self-defense classes in Taiwan have been sold out. They keep expanding the number of classes, and people wonder whether they’re ready to fight. The world was really surprised at the Ukrainian’s resilience, and how they’ve stood up to Putin and his war machine. I think the world is discounting the Taiwanese people a little too much right now.
Mr. Jekielek: The digital yuan is effectively a system of next-level tyrannical control over the Chinese population, and it’s functioning today, as we speak. It seems like the wheels are in motion to implement CBDC [Central Bank Digital Currency] in the West as well, with people saying that it has to happen. Can you speak to this?
Mr. Bass: As it relates to China’s central bank digital currency, it’s a digital Trojan horse. It’s a way of China exporting its digital authoritarianism to the world. If you and I agree to accept some sort of digital yuan for goods or services that we provide to someone in China, and you and I go onto a show like this and we say things that Xi Jingping doesn’t like, then they just turn your wallet off. You'll learn not to say anything negative about him if it costs you money. It’s a digital cancer, and it should be outlawed in the West.
To your point, you just had a great phrase, next-level totalitarianism. We’ve already seen them implement this. If you say something wrong, or look the wrong way, or even sing a song that might be deemed to be a national security threat in China, they can ding your social credit score so that you can’t buy food, you can’t ride on the train, and you’re not allowed to fly on an airplane until your credit score comes up.
I’ve also seen that you can buy your credit score back up by giving the government money. They’ve created a dystopian system with this CBDC. Again, it’s a digital Trojan horse for anyone that accepts it. It is a real problem.
The West, and Western intelligence, and Western financial market participants have war-gamed this for the last few years. Everyone comes to the same conclusion that I’ve arrived at. The question is how are we going to get this legislated?
Mr. Jekielek: What exactly would be legislated?
Mr. Bass: We need to outlaw the Chinese central bank digital currency for public and private use in the United States.
Mr. Jekielek: A few years ago in Canada, we saw people’s bank accounts being turned off for political reasons.
Mr. Bass: For the truck drivers protest.
Mr. Jekielek: Exactly. Is CBDC a foregone conclusion in the West? How do we prevent it from happening here?
Mr. Bass: I don’t believe that going to a cashless society is a positive thing for society writ large. That just puts all of our trust, our health, and our economic welfare in the hands of some elected and unelected officials. Remember, there are 18 people at the Fed that are unelected, that set monetary policy for the entire world, and they have no real checks and balances.
Let’s look back over the last 10 years. If you and I had money in the bank, and they told us that the new interest rate on our bank balance was minus 2.5 percent, meaning that we would pay them to hold our money, we would say, “We'll just take the money out.” If you’re in a full digital currency world, you can’t. You have to sit there and take it. It’s like a donkey in a hailstorm. You have to just stand there and take it.
I don’t think it’s a good idea. It gives the academic elite too much power over our lives. They already have enough power, given the fact that they set and maintain insane or crazy monetary policy like they just did. But you and I still have the ability to vote with our feet if it’s not a cashless society. If it’s a cashless society, again, you’re captive and you’re basically in a prison. That’s a terrible thing.
Mr. Jekielek: Let’s talk about the concept of voting with your feet. Kyle, we’ve talked about this multiple times. You described China as having a parasitic economy and I wholly agree with you. The single biggest problem is the West’s funding of the Chinese regime.
It’s happening less recently, as people have observed the Chinese leader’s belligerence. But the CCP is still going strong, and these passive indices are still putting money into Chinese military companies. What is it going to take to stop this system and this voting with your feet that doesn’t seem to be beneficial?
Mr. Bass: It seems to be some sort of Stockholm syndrome with Chinese characteristics. We’ve talked about losing money for 15 years, and losing money in the last four after the implementation of a national security law. Yet, we continue to allocate capital to China. There’s that old saying, the beatings will continue until morale improves. At some point in time, we’re going to have to cut these pipes off.
Those people that put the pipes in, Henry Fernandez at MSCI and the Bloomberg bond indices folks get paid fees. They get paid huge fees for their indices, and the passive flows. They really don’t care that much about being a fiduciary, but they set the gold standard for fiduciaries that must index their returns.
You mentioned that some things have changed, but the passive money is still flowing. Net, we actually saw an exodus of capital in the fourth quarter of last year. I don’t know what it is so far this year. We’re only about eight days in. But that is a pretty spectacular reversal to see a net net capital outflow.
Imagine if you are a U.S. venture capital firm with money in Chinese venture capital. Good luck ever getting that money out, especially given the new paradigm that we’re investing under today with the increased economic and geopolitical belligerence of the Communist party. The losses will change those capital flows forever. But I do think that this requires leadership, Jan. Again, I jokingly say at our firm that if U.S. national security was left up to the private sector, we would all be speaking Chinese tomorrow.
It requires leadership to say, “These are the things that we will allow, and these are the things that we won’t allow.” If you are on the director of national intelligence’s report and one of the top five threats to U.S. national security, how about we don’t invest capital in your economy? How about we don’t invest capital in state-run entities that are potentially building a war machine to potentially fight us in the future, like the U.S. and Britain did post-World War I? We are playing the exact same tune that we played between 1919 and 1938.
It’s just crazy to me that we haven’t learned from history, yet, here we are again. We’re appeasing mad men. We have this woke ideology. We have the appeasement caucus running our country and several other countries just like we did when you had Neville Chamberlain and Lord Halifax running the UK. They were meeting with Hitler after he invaded the Rhineland, and after he was moving on Europe. They just desperately wanted a peace deal. We all want peace, and yet appeasing dictators has never worked and it’s not going to work now. That’s where we are.
That’s a long way of saying that conflict will continue to increase. The gap between the wealthy and the poor continues to widen because of inflation. It’s an insidious thing that disproportionately affects the poor and the middle class, and that creates friction and conflict. That’s going to fuel the geopolitical fire that was already smoldering.
Mr. Jekielek: Let’s touch on the transfer of potent technology with national security implications like Eco Health funding gain-of-function research at the Wuhan Institute of Virology. We’ve been discovering how deep that relationship went and how full-throated it was. Some of our biggest companies that are invested in AI are literally going to China and building R&D centers for AI over there. What do you make of this?
Mr. Bass: We should have a vetting system here in this economy, but not to be xenophobic or racist, because we have very close partners in Asia. The Chinese people themselves are very good. The Chinese government is amazing on the world stage at playing the race card when they have nowhere else to turn. We have a deep, long standing relationship with the Philippines. We have a phenomenal relationship with Japan, and a very close relationship with many other Southeast Asian economies.
But we should be running a vetting process for anyone that is receiving U.S. government money from the National Institutes of Health or any of these special grant programs going to potentially fund insane bioweapons research. I’ve read all of the FOIA emails between Fauci and Collins, and I can’t believe what I’ve read. It was shocking to see the level of corruption in that system early on, and then the denial of the truth all the way through. The denial was that the truth could be a different truth. I agree with you, we’ve got to stop this funding.
When you understand the way the system works, if Alibaba was a pure private Chinese enterprise that Xi never did anything with or infringed upon, or we could prove its servers were in the U.S., and we were to buy shares in a secondary offering in Hong Kong, those dollars go into the Chinese banking system.
The Chinese government can use those dollars at its own will. i.e., the dollars are fungible once they’re going into their system. To a certain extent, it doesn’t really matter which companies we’re funding and which companies we aren’t funding. The fact that the net capital flow is an inflow of dollars is a real problem.
I am a proponent of full decoupling, but it will never happen before a physical conflict happens. I think that it’s already happening, but we won’t fully get out before the bullets start flying, and let’s hope they don’t fly. But it seems to me like it’s a foregone conclusion in Xi Jinping’s mind that it’s going to happen.
Mr. Jekielek: One of the top advisors to the CCP Politburo talked about keeping the U.S. distracted with other wars and terrorist activities. Right now, we’re invested in at least two very serious conflicts. There is a rise in terrorist activities in the Middle East. This doesn’t seem like a good time to deal with a Taiwan question.
Mr. Bass: That’s exactly right. We’re eight days into an election year. I’m a person that believes you need to lead with strength and not lead with weakness. We’ve been leading with weakness, which is a really poor signal to the world.
Mr. Jekielek: Absolutely everybody says this is going to be an incredibly eventful year, and they really have no idea what’s going to happen. There are a lot of unknowns. The people that usually like to predict things are afraid to predict things. As we finish up, a final thought?
Mr. Bass: I think that 2024 has the highest probability that we’ve seen in our lifetimes of China invading Taiwan, and I don’t think the markets are priced for that right now. If China invades Taiwan, the big question will be, “What do we do about it? What does the West do? How do we support Taiwan?” You’ve heard Japan say publicly that they will immediately be in the fight on Taiwan’s side. That has global implications if Japan is not bluffing.
I don’t believe the world’s ready for a conflict of that scale. Clearly, I’m not ready either. We need to be talking about potential outcomes, but also potential penalties to China. We need to be socializing the concept of pulling China off the Swift system altogether.
When you think about what we did with Russia, those sanctions were not really effective. We sanctioned 10 percent of the oligarchs. Big deal. We left all the Russian banks on the Swift system. We let the blood continue to flow to the tumor in Russia, because we were afraid of having our gasoline prices too high.
We have an administration that is not able to press the hard button. They can only press the easy button. The hard button might get pressed for us in that invasion, and we'll see what happens.
Mr. Jekielek: Kyle Bass, it’s such a pleasure to have you on the show.
Mr. Bass: Glad to be here, Jan. It’s a pleasure to see you.
Mr. Jekielek: Thank you all for joining Kyle Bass and me on this episode of American Thought Leaders. I’m your host, Jan Jekielek.
🔴 WATCH the full episode (47 minutes) on Epoch Times: https://ept.ms/S0111KyleBass
Epoch Original DVD collection:
Comments