Kyle Bass recently spoke with Bloomberg’s Erik Schatzker at the Milken Institute Global Conference. He discussed China’s economy and the global risks to financial markets. Bass is the founder and managing partner of Hayman Capital Management, a Dallas-based hedge fund focused on global event-driven opportunities.

You can watch the full interview here. Some highlights below (paraphrased):

• Wealth management products have grown to US$4 trillion in assets over the last few years. They now make up more than 10% of the Chinese financial system (US$34 trillion). They are basically levered money market funds. Some of the longer term assets aren’t doing well right now and this could become a real problem if there are issues on the liabilities side.
• Also starting to see other potential cracks in the system. Cited recent examples at China Minsheng Bank and Anbang Insurance. Signs of liquidity drying up could signal the beginning of a Chinese credit crisis. He doesn’t know how long it will to take to play out, but said that things tend to unwind quicker than they get put together.
• Recent divergence between the A-shares market and global equity markets could also reflect a liquidation of some assets due to growing problems in the banking and insurance sectors. 
• The indicator he is watching most closely is cleared and uncleared interbank lending. He expects to see a spike in interbank lending rates if there are indeed trust and liquidity issues in the system.
• On policy, he said President Xi just wants to get through November and the 19th National Congress. The government can’t stop the issues from playing out longer term but they do have a strong incentive to keep things orderly this year. 
• Finally, he said that the North Korea situation is becoming a real risk. Big question mark about what happens next. Very difficult for asset managers (or indeed anyone) to handicap.