Submitted by Taps Coogan on the 23rd of October 2018 to The Sounding Line.
Kyle Bass, founder of Hayman Capital Management, recently spoke with Real Vision to warn about China’s growing current account deficit and shortage of US Dollars.
“The most interesting thing, when you really look down at the numbers, is (China’s) current account has gone negative for the first time since 2001. So, it’s really 17 years since it’s been negative and the first half of this years it’s negative and there are a few reasons why: the travel services deficit, getting the $320 billion, and the second thing when you look at their current account is they’re such a massive net importer of energy… You remember in the end of 2014 when crude oil collapsed from $100 down to $35, and iron ore and the base metals went with it, that gave China a huge reprieve. Their current account was right at zero at the end of 2014 and then it bounced back up… because all of a sudden their raw material costs collapsed. So what’s interesting is that the net volume of crude oil that they import has gone up 45% in four years and now what’s the price doing? It’s turning… The price of crude has gone from the mid thirties to…$70 and the same for base metals, iron ore, and a lot of the inputs that they have. So when you look at their current account, this is not an aberration. The reason they are fighting so hard on trade is while they run a big trade surplus with the US, they run trade deficits with everyone else everywhere else… They run a $400 billion trade surplus with the US and their current account is negative and what we’re doing is putting some tariffs to at least level the playing field on unfair trade practices and that’s why they are really pushing back so hard, cause they are out of dollars… they are desperately short dollars and now their current account is negative. So when you think about this fallacy of China can have it’s cake and eat it too forever, I think we all know that that can’t happen and what we are seeing now is all of the preconditions are set forth for a pretty material devaluation.”
While it is an exaggeration to say that China has trade deficits with “everyone” other than the US, it is a little appreciated fact that the US provided roughly 90% of China’s trade surplus in 2017 and is on pace to contribute around 100% this year.
Enjoy the interview above.
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