휘청이는 중국 경제..전문가 "中 채권 시장서 침체 드러나" [ATL] (1부)

I know many companies that are US companies that have had billions of dollars in earnings sitting in Chinese banks, and they can't get it out. Kyle Bass is the founder and chief investment officer of Hayman Capital Management. He's known for his prescient bets on major global economic events. In this episode, we dive into why ByteDance hasn't sold TikTok despite a looming January deadline. The Chinese government said it's a private company, and yet the Chinese government is opining on whether or not they will agree to allow it to be sold to US companies. Why he views China's economy as actually collapsing, and what he believes the big economic and financial priorities of the incoming US administration should be. This is American Thought Leaders, and I'm Jan Jekielek. Kyle Bass, such a pleasure to have you back on American Thought Leaders. Great to be here, Jan. Kyle, you're a big proponent of freedom of speech. You're a big proponent of the Second Amendment. You've also been describing TikTok for quite some time as a digital Trojan horse, and you've been celebrating this recent court decision. Tell me a little bit about why. I think it's important to remember why the Federal Communications Commission, the FCC, and the Act in the early 1930s set that up. Why is that in existence? What we decided to do early on in this country is to not allow foreign ownership or foreign majority ownership of our broadcast licenses. As the world has evolved from broadcast journalism into more social media and other kinds of journalism, which we've seen a major transformation here in the 2024 election, we have a scenario in which a foreign adversary, a foreign adversarial government, is the controlling entity of the majority of the companies that are based there. Almost all public companies, certainly every broadcaster, has Chinese Communist Party officials officing in their office. CNBC China, for example, has MSS people in the studio. If they ever say anything wrong, they just cut the feed. It's important to note that when you have someone like TikTok broadcasting with quotes around it, they can broadcast directly into our kids' bedrooms. They have an algorithm that is addictive. They've banned it in China, and yet they push it here. They can influence the entire population here. That is a battlefield asymmetry that we afford our number one adversary. There's no reciprocity. We're not allowed to, let's say, install our social networking companies and have that connectivity to the Chinese population. It's a one-way street, Jan. They control the algorithm, and they can broadcast directly into our kids' bedrooms. This is something the FCC is going to have to address. The US court system, if you read that appellate court ruling, summarily shut down. The Chinese Communist Party was saying, this is an infringement on our free speech, when in reality, this is a state-controlled adversarial algorithm that is broadcasting directly to our kids' bedrooms. This is a national security issue. If you read the court ruling, it ruled on national security. It didn't rule on free speech. The other side is the espionage side on the national security end. Xi Jinping in his speeches throughout the years, almost the last decade, you've heard him refer to the smokeless battlefield and how they must win on the smokeless battlefield. What is that battlefield exactly? Well, number one, it's social media. Number two, it's data writ large. And number three, it's the cyber domain. TikTok can do just about everything that the Trojan horse of old did in today's smokeless battlefield. There's actually a tell, and the tell is fascinating. Whether you agree with you and I or me on this issue or not, there's such a tell. The Chinese government said it's a private company, and yet the Chinese government is opining on whether or not it can be sold to a US company or whether or not they will agree to allow to be sold to US companies. So let's just look at the decision tree flow chart that the Chinese Communist Party and TikTok and ByteDance have to go through between now and January 19th. It is, if you sell TikTok America, so TikTok America does about $12 billion in revenue. TikTok globally does about $36 billion in revenue, so it's about a third of their business. So when you look at TikTok America, $12 billion in revenue, and they make money, a minimum price, I'm fairly certain there's a bid out there from a big US company for $50 billion. So let's just assume it's worth 50 billion or more, and here's your decision tree. If you are ByteDance, you say, well, we just sell TikTok US for $50 billion and we run TikTok and the rest of the world, and a US company gets to continue to run TikTok and the algorithm has to be 100% in the US, all the servers have to be there. We have to have a full separation of TikTok, TikTok US. So 50 billion is a pretty nice payday for ByteDance and the ownership there of TikTok. Or plan B, plan B is the government decides they're never going to give up that algorithm and they're going to fight on free speech grounds and they're going to ignore national security because gosh knows the Chinese Communist Party doesn't want to talk about US national security, they only want to talk about their own, and then it's worth zero. So if they don't sell it to a US entity, a US owned entity, then the US shuts it off. Now, there is a provision in that court ruling, if you saw it, and in the law that says, if they can show demonstrable progress towards making a sale, President Biden can give them a 90-day reprieve from January 19th. Maybe that happens, maybe it doesn't. The fact of the matter is the most exciting part of what we're about to see here, Jan, is the Chinese Communist Party will have to reveal itself in that decision tree matrix. They're either going to receive $50 billion in a sale to Microsoft or Oracle or someone here in the US, or they're going to get zero. And the only reason, in probably the largest case of cutting off your nose and maybe your cheekbones to spite your face, this is the largest case ever I've seen of that dilemma. And that dilemma is something the Chinese Communist Party has to face between now and January 19th. It's going to be fascinating to see what they do. My guess is that they won't sell it and it will be worth zero. I believe that the algorithm is considered a national security issue, basically a state secret. Of course, it's a state secret. They're gathering data on every single American household that hooks into TikTok. I think people under the age of 31 get almost 100% of their news from TikTok. Imagine how important that is as a tool from a foreign adversary. The other thing that just strikes me, if you look at these salt typhoon attacks that we're just incrementally getting more and more information about the depth and breadth of the security breach, that seems somehow relevant to what we're talking about here. I hadn't actually thought about it until we're just talking right now. The salt typhoon hasn't received as much media coverage as it should. I know they talked about targeting the Trump administration's phones. But in essence, if you actually read or hear what happened there, they got into every single phone network. They got into every single phone. They have everything. You have to assume that the Chinese Communist Party has everything. It's the biggest breach in the history of the United States. It's important to know who we're dealing with, Jan. This just goes back to leadership. During the Cold War, every American, let's say the average American, knew exactly who the bad guy was. They knew the malign actor was Russia. In this situation, we have yet to define the Chinese Communist Party as the enemy. If you read the Director of National Intelligence's annual threat assessment report to Congress, in no uncertain words, we call the Chinese Communist Party and their organization and their malign intentions to be the single number one threat to U.S. national security. We've done it every year for the last five years. Our president needs to stand up and say, China is the enemy under this leadership, and we're going to do everything we can to redefine the battle space. I don't think you can even define the battle space until you can define who the enemy is. We need to start doing so. This is in the context of Xi Jinping himself saying for years now that he's waging a people's war on America. He says he must win that war. He must win that war at all costs. At the same time, in the last year, he's had official Chinese government representatives interface with our government representatives. They've told us four times in 12 months, they are going to forcibly take Taiwan and that it's their business and none of our business. With Taiwan semi-making 92% or 95% of the most advanced chips in the world, we all know that Taiwan's democracy must stand. It's China's belligerence is what is going to tip us into a potential kinetic problem or data problem and or cyber problem or all the above. If Xi Jinping would leave Taiwan alone, the world would be a much better place. But Jan, you and I both know since 2017, he's told us what he's going to do and at some point in time, I hope people start believing him. Let's talk about the Chinese economy. I think you're one of the people who understands this whole realm best. You've said that you believe right now the Chinese economy is collapsing. That's also something that numerous people that are dubbed China hawks have said in the past while, but somehow they managed to pull through. The property sector, absolutely collapsing, I think unquestionably, but somehow they seem to be pulling through. Why is it different now or is it different now? I think that when you think about China, you have to think about it in two spheres. You have to think about domestic China and how they operate their own economy, their own internal situation on the mainland. Then you think about China Inc. as they interface with the rest of the world. It's important to think about it in those two buckets. Here's why. Internally, they have an R&B-based economy and China can abandon moral hazard. I don't even know if they had a moral hazard, but they know how to define it. They can do whatever they like there. If their banking system isn't solving an R&B, they can print the R&B. When you look at their banking system, it's about 350% of GDP. The US banking system is one times GDP. If you include the non-banks and then the Fannie and Freddies of the world, we're about 1.7 times GDP in our banks. China's banking system is twice as large as ours and an economy substantially smaller than ours in a world in which they've only been at advanced banking since 2002. They've only been at this 20 years. They've got a lot of plates spinning and they've got a lot of leverage. Almost 40% of bank assets in China are lent to domestic real estate. If your real estate market's down 30 to 50 and your economy is 3.5 times leveraged to your banks and your banks are insolvent, you have a real problem. And their problem is larger than ours was during the global financial crisis. Now, Jan, they would never tell you this. They can't tell you that. They don't want to show that they're weak. They control all of the data. But it's easy to see the architecture of their economy, what they did wrong and what they've done wrong and what's happening internally. Their dealings with the rest of the world are vital to them. And what I mean by that is they import about 13 million barrels of crude oil every day, the world's largest importer of crude oil. They import almost 9 BCF of LNG every day. They are the largest importer of LNG in the world. They import 40% of their food every single day. And all of those imports they have to pay dollars for. So where do they get the dollars is the question. And they have to keep a robust trade relationship in dollars with us to be able to pay for their daily operations with the rest of the world because they have a closed capital account. Their RMB is not convertible into anything unless the Chinese party allows it to happen. They control that escape valve. So it's really an artificial exchange rate, closed capital account, internal disaster. But they've made a lot of money by being the world's factory floor. They've made it two ways, right? They've been the world's factory floor since 2002. And then they started stealing IP. And their IP, if you think about this, if you stole 200 to $300 billion worth of IP every year, and you make a return on it by employing it, using it, and even making it potentially better, they've got a machine where they were factory workers and stealing IP. And the way you think about China Inc, they've had a positive net income, right? So meaning if you and I were running a country, we need to have more dollars coming in than leaving. That's how you think about the current account. And they've taken that money and they've spent it on modernizing the military. So their capital investment has been make money while the sun is shining, make some hay while the sun's shining, and then modernize your military and force project so that you can achieve your potential goal of global primacy at all costs. And they're going to come up a day late and a dollar short, but it's going to be a potential kinetic situation if and when they take Taiwan, and I think that's coming. So maybe just give me the building block. You mentioned a few different things. There's this property sector and it's interesting how you divide it on the internal and the external. But give me the pieces that make up the Chinese economy now. Well, it's important to note that when you look at the breakdown of their economy, real estate and its concentric circles were the driving force in the, let's just say in the uplift and lifting 400 million people from poverty into the lower middle class in China. And I'm going to tie the most important driver to maybe one of the biggest risks that's facing them real quick. And it's happening in the developed world too. We've seen all of these reports of birth rates collapsing, whether we're talking about the U.S., Europe, or China, and China's birth rates collapsing faster than anyone else's. And here's why, Jan. You just have to think about this intuitively. If you allow real estate prices or even encourage them to just move up and to the right, and you know how local governments in China were selling land to developers and that's how they meet their local government budgets. Well, as we all know, that's not happening anymore because we're in a collapse. But housing prices as a percentage, so median housing prices in the numerator, median income in the denominator in tier one cities in China, that ratio got to be 25 times. So imagine if you made $100,000 a year and you had a $2.5 million house, could you afford it? The answer is absolutely not. In the U.S. at our subprime worst, our median home price to median income got to 6.6 or almost seven times. They got to 25 times. So what happened in China with this, call it unrestricted speculation in real estate? Well, the men, when they graduate university, they don't have enough money to get an apartment. And therefore, they're not having sex and procreating and they're not getting married. So if you look at the number of marriages in China, it's collapsed. The number of births has collapsed. They've gone from, you need 2.1 births per woman to just sustain a population. China's now down to 1.2. So what's happening? They allowed real estate prices to get so high that no one can afford them coming out of university. Therefore, their birth rates collapsed, which becomes a real problem. So the reason that China is not stimulating its domestic economy and turning real estate around and letting it move back up is Xi Jinping realized his folly. And you remember when he came out in 2019 and he said, financial security is And he realized that the population demographic curve was tanking. And it was because they allowed this rampant speculation in real estate, which basically was the Chinese miracle. The Chinese miracle was real estate and all the concentric circles around it moving up into the right, growing GDP exponentially and basically becoming the growth engine for the world on paper. But when you look at, did that wealth in GDP creation end up in the pockets of investors? Imagine this, 16 years ago, if I told you that I knew that there was a country in the world that would become the world's second largest in GDP, and it was going to grow its GDP 505% over the next 17 years. If you invested in their largest public index, which is the Shenzhen, Shanghai 300 index, going into a 500% increase in GDP, you would imagine you would have made more money than you could pull vault over. And instead, what happened is you lost a third of your money. So in the US, we've grown our GDP over the same period, about 75%. And you're up about 440% if you invested in the S&P 500. So investing in communism has never worked in the long run. It never will. And they end up showing themselves and Xi Jinping has shown himself since roughly 2017. And so when you get into a scenario where you're trying to bet or hope on a turn in the Chinese economy, and you realize that it's actually an architectural structural flaw in their economy, it's just kind of a fool's errand. I'm not saying that you can't trade it. I'm not saying that you can't get in front of a big government announcement and have stocks move up briefly, which just happened. But it's of my opinion that they have about $2 trillion equivalent of equity in their banking system. So I think about the first $14 trillion RMB that they print will only fill a hole. It's really interesting because there's, aside from the stock market in China, which you said is basically down a third, there are actually quite a few Chinese companies that are through this very unusual mechanism listed on US exchanges. I mean, at least 1000, I don't know the exact number, and significantly invested in as well by Americans and others. Yeah. It's actually crazy. As you know, if it's in the VIE structure, which is typically how all of them are, not all of them, the majority of them, then you only own a fantasy football warrant, right? VIEs have no ownership directly to the entity in China. It's a tracking entity against their performance. So there's actually no there there. There's nothing underneath. Oh, and by the way, the VIEs aren't subject to US PCAOB covered audits like every US company is. As you know, in 2013, we entered into a memorandum of understanding between China's securities regulator, the CSRC, and the US securities accounting regulator under the SEC. It's called the PCAOB, the Public Accounting Oversight Board. So we said, you know what? Even though every US company is subject to PCAOB covered audits, we just think China will be okay. We'll just trust you guys. And in fact, you saw Gensler did a spot audit of four Chinese companies. And a spot audit means they just get to see the paperwork. They don't get to call the banks. They don't get to have interviews with these people in the companies. They just get to read some paperwork that's redacted. And they decided to give them another three years. What's been happening, Jan, is insane. We need to have uniform standards for listing in America, period. We should stop the shenanigans. I would love to know how that happened. Do you know how the exemption to actually having meaningful audits occurred in the first place and how this investment vehicle that you don't actually own anything, as you're telling me, exists? Yeah. If you own a Chinese listed ADR in America, it's most likely, call it 95% of them are called the Variable Interest Entities, VIEs. And again, they own nothing. They don't have a claim. They don't have any liquidation preference if the company liquidates. In America, there are bank loans, there are bonds, there are stocks. If a company gets sold or if a company gets liquidated, if things go poorly, there's a chain of a waterfall where you own this thing, so you're going to get what you deserve. In China, if it goes bankrupt and you own a VIE, you get absolutely nothing. You have no claim on any assets. And just imagine owning a fantasy football share in an economy run by a communist government, who's our number one adversary. It's actually hard to believe. It's like antithetical to anyone's common sensibilities. And yet, we do it. You know why? Because there's this 1.4 billion person rainbow over there, and we can't wait to see, sell something into them or see it perform so that we can make some money. And in the end, everyone's losing their money. I mean, in the end, you're going to lose everything.