Hedge fund manager and Hayman Capital Management founder Kyle Bass said on Monday that without state support, China's currency would plunge.
"What's happening in China is they have to have dollars to sell to buy their own currency to hold it up. If they were to ever free float their currency, I think it would drop 30% or 40%," Bass told CNBC's "Closing Bell."
"And the reason is they claim to be 15% of global GDP in dollar terms, but less than 1% of global transactions settled in their own currency," Bass added. "And so, they prop their currency up...everyone calling them a currency manipulator – they are trying to hold this whole thing together."
Bass's comments came after the Chinese yuan crossed a closely watched barrier against the U.S. dollar. The onshore Chinese yuan changed hands above 7 against the dollar, the currency's weakest levels against the greenback since 2008.
The new lows for the yuan came after U.S. President Donald Trump unexpectedly announced fresh tariffs on Beijing last week that are set to take effect from Sept. 1. China on Monday said it could slap tariffs on U.S. agricultural goods that it bought recently, state-run media Xinhua reported.
Bass, known across Wall Street for his prescient bets against subprime mortgages during the financial crisis in 2008, is also a noted China bear. The hedge fund manager has previously admonished American corporations for pushing Trump to strike a deal with Beijing too quickly and told CNBC as recently as June that the U.S. has leverage over China and should pressure negotiators into a better settlement.
In July, Bass criticized the Chinese for failing to honor their promises in trade agreements.
"Every deal that the Chinese have signed up with us since their inception into the WTO since 2001, China never lives up to their promises," he said on July 25. "At some point in time, one of our administrative officials is going to hold their feet to the fire and this is kind of a battle of cultures because the Communist Party doesn't want to submit themselves to anything measurable or enforceable."