WHEN: Today, Friday, June 30th
WHERE: CNBC's "Squawk Box"
Following is the unofficial transcript of a CNBC interview with Hayman Capital Management Managing Partner Kyle Bass on CNBC's "Squawk Box" (M-F, 6AM-9AM ET) today, Friday, June 30th. Following is a link to the video on CNBC.com: http://www.cnbc.com/video/2017/06/30/kyle-bass-spots-tectontic-shift-in-us-relationship-with-china.html.
All references must be sourced to CNBC.
BRIAN SULLIVAN: ALL RIGHT JUST A FEW MINUTES AGO WE GOT A PHONE CALL FROM HEDGE FUND MANAGER KYLE BASS WHO WANTS TO RESPOND TO SOMETHING THAT HE HEARD ABOUT CHINA. HE JOINS US NOW ON THE "SQUAWK" NEWS LINE CALLING IN. HE IS OBVIOUSLY PARTNER AT HAYMAN CAPITAL, ONE OF THE MOST WELL KNOWN HEDGE FUND MANAGERS OUT THERE. KYLE, THANK YOU VERY MUCH FOR PHONING IN ON SHORT NOTICE HERE. WHAT EXACTLY THAT YOU HEARD CAUGHT YOUR EAR ENOUGH THAT YOU WANTED TO CALL IN?
KYLE BASS: WELL THERE ARE TWO THINGS, BRIAN. NUMBER ONE, THE THINGS THAT HAPPENED YESTERDAY KIND OF SIGNIFIED A TECTONIC SHIFT IN THE U.S. RELATIONSHIP WITH CHINA. NUMBER ONE, WAS YOU KNOW, WE UNILATERALLY IMPOSED SANCTIONS ON A CHINESE FINANCIAL INSTITUTION AND A COMPANY AND TWO PEOPLE THERE. AND YOU KNOW, XI IS VERY MUCH A CONTROL FREAK AND HE DOESN'T APPRECIATE THE UNITED STATES ACTING UNILATERALLY. AND THAT'S SOMETHING THAT TREASURY SECRETARY MNUCHIN, AND THE TRUMP ADMINISTRATION INTEND TO CONTINUE TO TRY TO CUT OFF NORTH KOREA'S FUNDS INTO THE FUTURE. ON THE SAME DAY, WE ANNOUNCED A 1.4 BILLION ARMS SALE TO TAIWAN. TAIWAN WAS KIND OF THE ONE AREA THAT XI ASKED US TO STAY AWAY FROM IN HIS MEETING AT MAR-A-LAGO WITH THE TRUMP ADMINISTRATION. WE DECIDEDLY TOOK A MUCH STRONGER STANCE. AND YOU KNOW, IN YOUR LAST INTERVIEW, THERE WAS SOME HOPE THAT TRUMP WAS WANTING TO HAVE A ONE-ON-ONE MEETING WITH KIM JONG-UN. AND I THINK WHEN THE UVA STUDENT OTTO CAME BACK, AND PASSED AWAY, I THINK ANY MEETINGS WITH NORTH KOREA ARE NOW OFF. AND SO I THINK WHEN YOU THINK DIPLOMACY AND THE MANNER IN WHICH WE HANDLE OUR RELATIONSHIP WITH CHINA, I THINK IT TOOK A MAJOR CHANGE, A MAJOR STEP FOR THE WORSE YESTERDAY, AND I JUST, I FIND ALL OF THE OPTIMISM TO BE QUESTIONABLE.
SULLIVAN: BECAUSE, IN YOUR VIEW, AND YOU OBVIOUSLY ARE WELL KNOWN A BIT NEGATIVE ON CHINESE BANKS AND THE CREDIT CYCLE AND SORT OF THE DEBT LOAD THERE ON CHINA. SO YOUR ULTIMATE THESIS, KYLE, IF I'M HEARING YOU RIGHT IS WE SORT OF MISSED TWO LEFT HOOKS THAT THE UNITED STATES DELIVERED TO CHINA YESTERDAY, OR AT LEAST RECENTLY WITH THIS BANK OF DANDONG SANCTIONS AND THE TWO INDIVIDUALS, PLUS THE TAIWAN ARMS SALE. BUT HOW WOULD THAT PLAY OUT THEN FROM AN INVESTING OR A CREDIT THESIS?
BASS: WELL, JUST ABOUT A MONTH AND A HALF AGO, YOU KNOW, SO FIRST OF ALL, THE POSITION THAT CHINA HAS TAKEN ON THE GLOBAL STAGE AS KIND OF A RISING POWER, AND SOMEONE TO BE RECKONED WITH, FROM AN ECONOMIC PERSPECTIVE, IS SOMETHING THAT IS A FACT. HOWEVER, SOME OF THE FACTS ARE BUILT ON SAND, A FOUNDATION OF SAND. BECAUSE THEIR BANKING SYSTEM HAS GROWN TOO RAPIDLY, AND THEY HAVE CONSTANTLY SAID THAT THEY'RE NON PERFORMING LOANS AND THEIR BANKING SYSTEM AMOUNTS TO LESS THAN 2% OF ASSETS WHEN THE DEPUTY CHAIRMAN OF THE CDRC IN A PUBLIC INTERVIEW ABOUT A MONTH AND A HALF AGO SAID THAT THE WAY THEY'VE KEPT LOANS, NON PERFORMING FUNDS SO LOW IS THEY HAVE FORMED 18,000 CREDITORS COMMITTEES TO – I'M SORRY 12,000 CREDITORS COMMITTEES TO DEAL WITH 18.5 TRILLION – BAD LOANS. AND THAT'S MORE THAN ALL OF THE EQUITY IN THE CHINESE BANKING SYSTEM –
BECKY QUICK: HAVING SAID THAT THOUGH, KYLE, THE RHETORIC HAS TONED DOWN DRAMATICALLY FROM WHERE WE WERE NOT ONLY DURING THE ELECTION SEASON, BUT JUST AFTER PRESIDENT-ELECT TRUMP WAS SAYING THINGS ABOUT CHINA. RHETORIC HAS TONED DOWN SUBSTANTIALLY. AND TODAY THE AGRICULTURE SECRETARY IS IN CHINA TO CELEBRATE THE RETURN OF BEEF AFTER 14 YEARS OF NOT BEING PERMITTED IN THAT MARKET. U.S. BEEF BEING EXPORTED TO CHINA. HOW DO YOU KIND OF ADD THAT ALL UP?
BASS: YEAH, I THINK, YOU KNOW, CHINA'S TRYING TO MAKE, LET'S SAY, MARGINAL CHANGES IN THE BALANCE OF TRADE. RIGHT? BETWEEN BUYING SOME MORE BEEF FROM THE U.S., OR I GUESS, BUYING BEEF ONCE AGAIN FROM THE U.S., AFTER STOPPING WHEN WE HAD THE MAD COW PROBLEMS, AND ALSO IF YOU NOTICED, THEY'RE IMPORTING A LOT MORE CRUDE OIL FROM THE U.S THEY USED TO IMPORT ABOUT 50,000 BARRELS A DAY. I THINK THAT'S UP TO OVER 300,000 BARRELS A DAY, LITERALLY ONE MONTH AFTER THE MAR-A-LAGO MEETINGS. THEY'RE DOING THINGS TO TRY TO TWEAK THEIR TRADE RELATIONSHIP WITH THE U.S BUT MORE IMPORTANTLY, THEIR NEWFOUND STRENGTH GLOBALLY, BOTH ECONOMICALLY AND AS YOU SEE MILITARILY IN THE SOUTH CHINA SEA, IS ALL BASED UPON THEIR NEW – THEY'RE BELIEF IN THEIR ECONOMIC STRENGTH, WHICH IS ALSO KIND OF NEWFOUND SINCE 2009. AND ALL OF THAT IS BUILT UPON A RAPID CREDIT EXPANSION THAT THEY'RE GOING TO HAVE A COMEUPPANCE, AND THEY'VE ADMITTED THAT THEY'VE GOT 18.5 TRILLION RNB OF BAD LOANS, WHICH IS, AGAIN, MORE THAN ALL THE EQUITY IN THEIR CHINESE BANKING SYSTEM
SULLIVAN: KYLE BASS, HAYMAN CAPITAL. KYLE, I WISH YOU HAD MORE TIME, BUT WE DO APPRECIATE YOU CALLING IN ON SORT OF A MOMENTS NOTICE. HAVE A GREAT WEEKEND, BUDDY. I'M SURE WELL CHAT WITH YOU AGAIN.
BASS: YOU, TOO. HAVE A HAPPY FOURTH.
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