“The largest macro imbalance the world has ever seen.”: China banks may lose 5 times US banks’ subprime losses in credit crisis

China property cc

Consider that according to Bass (one of the few investors to win big during the last recession) the exposure of Chinese banks (and others) to their domestic property bubble is 5 times that of US banks during our recent bubble. China’s economy is still 2nd to the American in terms of size. Consider the impact of a property bubble 5 times the size of ours in an economy which is smaller than ours. Consider also that China is run by a Communist Party which is very keen on staying in power and has a history of using extraordinary force in times of crisis.

(From CNBC)

This expansion in the banking system’s asset base was fueled largely by rapid credit expansion, Bass wrote, that helped fund the huge, and often inefficient, infrastructure spending program that has propped up China’s growth.

“China’s [banking] system is even more precarious when we realize that, even at the biggest banks, loans are not made to borrowers based on their ability to repay,” he wrote. “Instead, load decisions are political decisions made by the state.”

Add to this the danger posed by China’s shadow banking system – made up of instruments Bass claimed the country’s banks used to subvert restrictions on lending – and the upshot was there were “ticking time bombs” in China’s banking system, the hedge fund manager explained.

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