http://finance.yahoo.com/news/chinas-scary-problem-coming-kyle-154230327.html
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.
Such losses would force China to use much of its foreign exchange reserves (which stand at about $3.6 trillion) and sell bonds to recapitalize the banking system, he said.
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