China' s credit system expanded " too recklessly and too quickly,"   and  " it' s beginning to unravel,"   warns Hayman Capital' s Kyle Bass.

Crucially, Bass notes that  ballooning assets in Chinese wealth management products  are another  sign of a looming credit crisis in the nation.

 

 

" Some of the longer-term assets aren' t doing very well,"   Bass said on Bloomberg TV from the annual Milken Institute Global Conference in Beverly Hills, California.  " As soon as liabilities have problems - meaning the depositors decide to not roll their holdings - all hell breaks loose."

The wealth management products, or WMPs, have swelled to $4 trillion in assets in the last few years, he said., on a $34 trillion banking system...

 

 

" think about this - in the US, our asset-liability mismatch at the peak of our subprime greatness was around 2%! ... China' s mismatch is more than 10% of the system."

Must Watch simplification of the next stage of the credit cycle in China...

 

Timing the drop is hard, Bass notes, reminding Bloomberg' s Erik Schatzker that  " in the US, the first bumps in the road hit in early 2007, and we didn' t start to really accelerate until mid 2008...  even a large unraveling takes a while."

Bass has been sounding the alarm for some time that debt-burdened Chinese banks need to be restructured...

 

 

" What you see when the liquidity dries up is people start going down... and this is the beginning of the Chinese credit crisis."

And judging by the collapse in both Chinese stocks and bonds, the  deleveraging is accelerating...



 

And liquidity is getting desperate again...

 

Earlier this morning we reported that according to Korea Times,  China had allegedly sent North Korea what amount to a final warning over its military provocations.  The rumor cited the May issue of Hong Kong monthly news outlet Dong Xiang. It said a Chinese Ministry of Foreign Affairs junior minister invited Park Myung-ho, an official of North Korea, for a meeting. China' s Foreign Minister Wang Yi attended the meeting and asked his junior to read aloud the warning to the North over the nuclear test. The memorandum mentioned that China will condemn strongly, pull back on all economic cooperation and even blockade North Korea if it conducted the test.

It didn' t take Korea long to respond...



In an almost unprecedented criticism of China on Wednesday, North Korea' s state media said Chinese state media commentaries calling for tougher sanctions over Pyongyang' s nuclear program were undermining relations with Beijing and worsening tensions.As Reuters reports,  a commentary carried by the official Korean Central News Agency (KCNA) slammed China&rsquo s  " insincerity and betrayal,"   referring to recent commentaries in China' s People' s Daily and Global Times newspapers, which it said were " widely known as media speaking for the official stand of the Chinese party and government."

The response was terse and aggressive...

 

 

" A string of absurd and reckless remarks are now heard from China every day only to render the present bad situation tenser."

 

" China had better ponder over the grave consequences  to be entailed by its reckless act of chopping down the pillar of the DPRK-China relations,"

The KCNA commentary charged that the  Chinese articles had attempted to shift the blame to Pyongyang for " deteriorated relations"   between China and North Korea and U.S. deployment of strategic assets to the region. It also  accused China of " hyping up" damage  caused by North Korean nuclear tests to China' s three northeastern provinces.

Chinese state media calls for North Korea to dismantle its nuclear program were " a wanton violation of the independent and legitimate rights, dignity and supreme interests" of North Korea and constituted " an undisguised threat to an honest-minded neighboring country which has a long history and tradition of friendship," it said.

North Korea' s " media" responded by explaining that the  nuclear program was needed for the " existence and development" of the country and " can never be changed nor shaken."

The bottom line is that the window for threading a diplomatic solution, brokered by China, is closing rapidly...

 

 

" The DPRK will never beg for the maintenance of friendship with China."