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Kyle Bass: The ‘Cancer’ of China’s New Digital Currency

“Imagine a currency that almost has a mind of its own … It knows your account data, knows your birthday, your social security number, where you live” and exactly what you like to buy. And all of this knowledge would be sitting in the hands of the Chinese Communist Party.

In this episode, Kyle Bass, founder of Hayman Capital Management, breaks down the threat of a new Chinese digital currency and how the regime could force countries to use it.

“They’re so good at exploiting every crack, every nook, every cranny … They take our openness, and they exploit it,” Bass says.

Jan Jekielek: Kyle Bass, it’s great to have you back on American Thought Leaders.

Kyle Bass: Great to be here, Jan.

Mr. Jekielek: Kyle, let’s talk about the Chinese Communist Party. Let’s look at the bigger picture here. Let’s talk about what you see are the biggest threats from the CCP to America and frankly, the free world at the moment.

Mr. Bass: Sure. I think, Jan, the biggest threat is something that they have been working on for many years and that they’re going to roll out sometime later this year—2021, early 2022. I think you’re going to see them roll out the Chinese Central Bank digital currency, the digital yuan, for namesake. I think that, I believe, it’s a digital Trojan horse.

I think many people in the intelligence and defense community are also very much worried about what their intentions are and what kind of functionality the digital currency will have as far as its global uses and enabling the Chinese Communist Party to project their digital authoritarianism all over the world.

We know that they have a strict authoritarian government within, let’s say, the walls of China, where they control the population with things like social credit scores and they manipulate the population’s activities, actions, thoughts, and even words at the local and national level. We don’t believe that they could censor people in the United States, but I’m sure as you and The Epoch Times know, they can censor just about anyone that they have business arrangements with.

Now, imagine a currency that almost has a mind of its own. It knows where it is, it knows it’s in your account, it knows your account data, it knows your birthday, your social security number, where you live. It actually knows your spending proclivities and how you spend it because it is centralized—it’s not decentralized. It’s the opposite of private crypto, but it has a mind of its own and it has the knowledge.

The Chinese Communist Party knows what you’re doing. So imagine, if you and I were sitting here in this interview and I said something negative about the Chinese Communist Party and I had accepted the digital yuan as payment, they could just turn it off or they could restrict my ability to buy a plane ticket to China. They could restrict, they could influence me the same way they influence their own people if they had their hooks into me enough, if I had enough digital yuan.

Today, the Chinese currency isn’t used anywhere really in the world, right? About 1.8 percent of cross-border settlement happens in the RMB or their yuan. If you peel back the layer of that onion, you see that almost the entire 1.8 percent is China trading with Hong Kong, which is essentially China trading with itself.

So today, China doesn’t, even though we all believe in the narrative of China’s economic might, it’s all based in dollars today, and it’s all based upon their ability to access dollars. And so, the U.S. today holds all the cards.

When they roll out the Chinese Central Bank digital currency, their hope is to have a massive influence around the world to really leapfrog where they are today into a much stronger position economically and also giving them more control.

I think that we should ban the currency and not allow any of it to be handled in the United States. I know that sounds hyperbolic, but if you just think all the way through this, you can’t have a little bit of cancer. You either have cancer or you don’t have cancer.I believe we can’t allow U.S. corporations or individuals to transact in the CBDC.

Mr. Jekielek: There’re also ways in which they can kind of—in their current arrangements with different countries around the world, especially countries where they’ve created this debt trap sort of relationship—there’s ways in which they can almost compel those places to accept this currency.

Mr. Bass: Sure. If you just think about if I were in charge and rolling it out, I could force my counterparties to accept it, especially the Belt and Road countries that are basically immediately over indebted to China for really, China’s done it for a strategic reason. These are like moves on the Risk board if you were a kid.

But I think that when you think about how they could compel its use, what if China says, “If you’re going to transact in global trade with China, you’re going to import or export, you must settle in our currency. You have to buy it through our central bank. We’ll hold your dollars, euros, yen, or pounds in our central bank, and we’ll give you central bank digital currency. If you don’t want to transact with China, well, then that’s fine. But if you do, you must use our currency.”

What if they went to the institutional investment community in the U.S. that can’t wait to earn another dollar investing in China and say, “If you’re going to invest in China, you have to invest through our currency,” right? They can force its use. Imagine what kind of stranglehold they will have over the world if they hold all of our capital that way.

Mr. Jekielek: Fascinating. Very, very disturbing, obviously. So, a number of people I’ve spoken with China Hands, China experts have said that this, let’s say, cozy relationship you’re alluding to that Wall Street investment firms and so forth have with communist China is actually one of these top threats to the rules-based order as you describe it. What do you think?

Mr. Bass: Yes, I think without a doubt. I think what China is so good at is they’re so good at exploiting every crack, every nook, every cranny of opportunity and openness that our society affords them, they end up proliferating. Everything, every response that they can engage in, based upon their interactions with our society, they take our openness and they exploit it.

When I think about Wall Street and I think about their relationships with some of the billionaires in the U.S., the way that they create this evangelism of being pro-China and pro-business and pro-China’s greatness is they take someone and they give him $6 billion and they say, “We want you to invest this for us.”

These Wall Street billionaires, they say, “Well, that’s okay, we’re investing here. We don’t really worry about human rights. We don’t worry about what the government’s doing over here. We’re going to invest over here, and we’re going to make money.”

They kind of have a dual personality or even a schism exists between Wall Street, and let’s say, the national security complex of the United States. You choose billionaires and you make them richer, and you create cheerleaders.

That’s a huge risk to us. They do that not only on Wall Street, right? They do it in every place that they want an evangelical cheerleader. They’ll give someone access to the cosmetics market. It’s kind of indirect bribery, when you think about it.

If they give you access because they like you and they like what you say about China, and they don’t give me access because they don’t like what I say about China, they’re kind of de facto bribing you, if you follow me? It’s not a free market.

They decide who their thought leaders are going to be in the West, and they give them special access, and special access is analogous to bribery. That’s a real issue.

Mr. Jekielek: And in this case, you have this whole, essentially, the whole system is connected in various ways to the CCP, and this is what we want to explore a little more as we talk here.

Mr. Bass: Sure.

Mr. Jekielek: Do you think the Chinese regime has a chance of succeeding at making this new digital yuan the global reserve currency?

Mr. Bass: Well, I don’t think it will be the global reserve currency. I believe that if you look at China’s, let’s call it representation of global GDP, China claims to be at U.S. constant dollar rates today at their current band. They claim to be about 15 percent of global GDP.

Remember, only 1.8 percent of global GDP settles today in the current yuan from a cross border perspective, and that’s mostly with Hong Kong. For all intents and purposes, they don’t have a presence in the globe as far as currency is concerned. Their currency is all with themselves.

You’re asking me whether they’ll be the new global reserve currency. No, they won’t even be close, but if they went from zero to 15, that would be a problem, especially if it had these attributes that you and I are talking about, right? If they were able to get it in the people’s hands that they really wanted to influence, very big problem, right?

It’s a way that they can directly influence and/or kind of coercively bribe very important people around the world, if you follow me, and they can do it directly, right? If you just think back to wars and you think back to propaganda, how the U.S. and others have engaged in propagandizing the other side of wars, letting them know how the real world works.

Imagine their ability to reach directly into the pocketbooks of U.S. military members or congressional members. One of the things that the Chinese tried to do is to buy a huge distressed mortgage lender, GE’s mortgage lending unit. Well, I guess that was about the time that they were also doing a very surreptitious purchase of the gay dating app. Imagine if they could find people in the intelligence community that might have been outwardly heterosexual with children and inwardly homosexual, and they could exploit that, right?

So, CFIUS [Committee on Foreign Investment in the United States] made them unwind. But also they were trying to purchase a, call it mortgage servicer, so they would know who was falling behind in their mortgages. They could influence those people in a very different way. If they knew who was in trouble and they knew they could get directly to you, they could make you do whatever they wanted you to do.

I think about the attributes of their ability to go from zero to 15 as being tectonic, right? They’re not going to become the global reserve currency like the dollar is anytime soon, anytime in our lifetimes, but zero to 15 is a problem. Zero to five is a problem, right?

I think we need to be thinking about things in quantum leaps. Zero to 15 is a quantum leap in global settlement.

Mr. Jekielek: Let’s talk about this briefly because I think basically what you’re saying is that any Chinese app, for example, the data from that app is essentially given full, the CCP is given full access to that to exploit at will. That’s what you’re saying?

Mr. Bass: Yes, for certain. If you look at any company, whether it’s a U.S. company, or European company, or Chinese company, gets any kind of scale, CCP members are forced into the office to monitor activity at the company.

If you have a company in China and you’re GM or you’re even Chinese companies that are trying to create new social media apps, a third of the people in the office are going to be CCP officers overseeing whatever’s going on there. Everybody knows that that’s ever done business in China.

So, absolutely. They see knowing it. They hear everything. They have access to everything.

Mr. Jekielek: What are some of the major ways that U.S. capital flows into basically Chinese companies, especially some of these entities that are connected to human rights violations or the military and so forth?

Mr. Bass: What China has figured out is how to play the card of their deserved representation and global indices. Forget the fact that China won’t allow its companies to submit themselves to what we call PCAOB covered audit. So, the Public Accounting Oversight Board of the United States requires what we deem to be covered audits for anything that’s listed here.

We’ve given China an exemption. In 2013, the Obama administration, the SEC [Securities and Exchange Commission] just gave them an exemption and said, “It’s okay. Don’t worry about it.” So they’re not submitting themselves to Western audits, yet they want their rightful place, what they deem to be rightful in the global index movement.

You know the global capital markets are in the multiple trillions of dollars and they want their percentage of that. And so, when you think about their inclusion, almost by fiat in the equity and bond indices of the world, you have a number that is in the multiple trillions of dollars, of dollars flowing into Chinese companies through Hong Kong into Beijing, and you’ll never see that money back.

All that does is fuel China’s ambitions around the world because they must have—I say, dollars, euros, yen or pounds—but they must have dollars, let’s just say dollars. They must have dollars to interface with the rest of the world because no one trusts them. No one will accept their own currency as legal tender, right?

And so they have figured out how to get a much larger flow of blood to grow the tumor, right? They’ve got a tumor that needs dollars for blood and their inclusion in these global indices has been, again, de facto. They say, “We need our rightful place.” The rightful place is 40 percent of this world index, including Asia—25 percent of this index is 15 percent of another.

When you add, that is huge amounts of capital. That’s outside of active managers wanting to buy a share of Ant Financial or wanting to buy a piece of Alibaba. When you think you buy these Chinese stocks, you don’t own anything. You own a fantasy football share of something, right? You own a variable interest entity in the Cayman Islands. If Alibaba were to liquidate, you don’t have a claim on Alibaba’s assets as a Westerner. You have a tracking stock.

Fantasy football is you’re investing in a team. That’s just a fake team, and however they play, you either win or you lose. That’s exactly what you do when you buy a Chinese stock.

It’s insane that this much institutional capital is going into fantasy football shares of companies that don’t submit themselves to audits, and yet greed and avarice is what takes us there.

That’s how they exploit the U.S. capital markets through the passive money flows or the indices, and the active money flows to the people that really want to overweight Chinese technology stocks.

I believe one thing we haven’t talked about in this entire interview is reciprocity would take us a long, long way. In every single way, do you think they would allow a U.S., a former U.S. Air Force general to go buy 200 square miles of land between the Chinese border with Taiwan and China’s biggest military base? That would never ever happen. They would never let it happen.

They won’t even let us co-locate servers in their colo facilities for telecom and they are all over ours. We allow, I don’t know how many reporters, how many Chinese journalists do we allow in here, and they allow, what, four or five of ours there. Now, they’ve thrown the rest of ours out.

I think about reciprocity being vitally important, so that would take us a long way. But their infiltration into U.S. capital markets and dollars, their hooks are so deep now that in some of the meetings I’ve had in D.C., they say, “Well, if we put Alibaba on the list, that will really cause some losses to U.S. pensioners.” We don’t want to cause losses to U.S. pensioners, so we can’t put them on the list, right?

They have this kind of too big to put on the list problem, too big to fail problem, because they’ve already infiltrated the U.S. capital markets.

I hear U.S. politicians telling me, “We can’t do it because it’s going to hurt us.” I say, “Well, you better do it now. It’s going to hurt us a lot more later,” right? It’s like, “Take a little bit of pain now or a lot of pain later.” And you know politicians, their answer 100 out of 100 times is, “We’ll take the big pain later. I want to get elected again.” That’s our problem.

Mr. Jekielek: Some of these are military companies or companies actively involved in human rights abuses or sort of deep surveillance technology like in Xinjiang and so forth.

Mr. Bass: Yes. You look at Hikvision and you look at ZTE and Huawei, if you look at the manner in which ZTE and Huawei operate around the world. But what I’ve done is I put together a dossier, hired some folks to go to local courts in 20 different countries around the world and look at the bribery cases against ZTE, ZTE alone.

You wouldn’t believe what’s written in the courts of settled cases of ZTE executives bribing local officials in sovereign countries. And yet, then I drive up the road in Dallas and ZTE’s U.S. headquarters is thriving in North Dallas.

You say if this is the manner in which they operate all over the world, they even have a chief bribery officer in Shenzhen. They pay the money directly from Shenzhen to the people that are being bribed in these local governments. They don’t even run it through Cayman Islands subsidiaries anymore. And yet, nobody cares.

When I think about how they operate and how we could stop them, whether it’s a military or a company directly helping military surveillance like Hikvision or the DJI or ZTE and Huawei, how they embed themselves in networks all over the globe and they, of course, sell network equipment so cheap that they get in, they get into these networks.

Now, they’ve got the flow of information, the flow of data. So, I think we need to, again, excise them out and we need to use, guess what? We can use the rule of law against them.

Mr. Jekielek: So, the CCP sees this whole coronavirus pandemic as a major strategic opportunity. There’s been officials that have said that the damage caused by the West’s response to coronavirus that this is something that kind of potentially is as big as something that would have happened if there were a World War III—basically, a lot of damage.

They see these World Wars as a time when the world order was restructured. We’re aware that there’s discussion of trying to use this opportunity to actually restructure the world order with the Chinese Communist Party on top. I don’t know, do you see this sort of thing happening and if so, how do you see the CCP trying to accomplish this?

Mr. Bass: Yes. I think like from the Wuhan virology lab, it is clear, it’s actually the most odds-on case of them all is that it leaked from the lab. It’s one of the few places in the world that does gain-of-function research with coronaviruses, and that just is magically where this appeared and the scientists got sick in November and the cell phones all went down in the Wuhan virology lab. And voilà, here we are with over 3 million people dead around the world. You said it. It’s analogous to World War III. I would say that that it’s definitely been, it’s acted as a bioweapon around the world.

I found something interesting. If you look at all Southeast Asia, including China, I think the disclosed or reported death toll for the Wuhan virus has been something around 25,000 to 30,000 deaths all over Southeast Asia, [excluding] India, of course.

But if you look at the developed West, it’s where the rest of the 3 million deaths are, so it seems to either affect the West in a much more lethal fashion or Southeast Asia is not telling the truth about their deaths.

Either way, if we’ve got 3 million deaths in a world of roughly 7 billion people, it’s not really World War III, as far as deaths are concerned. When I look at World War II, we lost about 3 percent of the world’s population in World War II, and that was 3 percent of the global population.

This time, it would be about 200 million people. Thank God, it didn’t kill 200 million people. World War II really severely affected the productive capacity of two continents, right?

I believe this is kind of a shot across the bow, but not really World War III. But I think that China not allowing Western scientists in, never producing the animal that was infected as patient number one, and taking over a year to cover it up before they allowed anyone in—imagine the police giving a suspected murderer a year to clean the crime scene. I mean, it’s kind of, China acted irresponsibly and maybe with even malign intent, right?

You think about Xi closed the doors to Wuhan within China and let international flights leave Wuhan for another, what, 45 days? They closed the Naval Institute of China, which is based in Wuhan, January 2. They locked it down and they let the virus perpetuate itself around the world through the end of March.

The facts are the facts, and how we interpret the facts is actually pretty factual simply because it is what it is. They did allow flights to leave Wuhan and land all over the world for a long time. They knew they were infecting the rest of the world with the virus.

Now, whether it leaked out of a lab or whether they intentionally released it, no one will ever know. It will all be supposition from now on.

But the facts are irrefutable and they knowingly let the world get infected while they were actively lobbying the WHO to not limit travel, actively asking the WHO to not be “racist,” when the right thing to do was shut the world down.

Mr. Jekielek: With this coronavirus pandemic, what kinds of asymmetrical warfare methods or the unconventional warfare tactics do you see the CCP using?

Mr. Bass: Yes. It closed down the Western economies. What China has been able to do during the shutdown is essentially use vaccine diplomacy in places like Latin America, in places like Southeast Asia, in any countries that are deemed to be too poor to afford a vaccine.

There’s China with Sinovac, right? So, vaccine diplomacy creates some sort of a Stockholm syndrome on a global scale when you have the perpetrator giving you the antidote to its own problem, and then you thank the perpetrator for their benevolence, and their goodwill is like mind numbingly crazy, but countries are buying it.

It’s a pretty effective psychological tool that using vaccine diplomacy is something we all need to worry about even though their vaccine is at best 50 percent effective and at worst, a lot less.

I think that this is just the beginning. I hate to sound too conspiratorial because I know if we go down rabbit holes and it sounds too conspiratorial, we lose people’s trust, but I think that I’ll just make it a fact-based statement.

The protests in Hong Kong and the pro-democracy movement in Hong Kong, that friction that was happening between Hong Kong and China was at its zenith when magically, this virus showed up and shut Hong Kong down. Everyone left the streets. I’m sure you’ve seen the images from the June 4 Tiananmen Square vigil two years ago and this year.

It’s, again, not to be too conspiratorial, it’s just perfect for China, at the perfect time is when it actually happened for them. It enabled them to take the single largest existential threat that has faced the Communist Party in the last 30 years, and turn it off. I tend to believe that had something to do with it.

Mr. Jekielek: Tell me a little bit about some of your own, I guess, personal experience with discovering or seeing or interacting with ways that the Chinese regime has penetrated the U.S.

Mr. Bass: On Wall Street, it’s fascinating to me how many China apologists there are, again, despite all of the facts, despite whatever religious preference anyone has on Wall Street.

Looking back at the Holocaust and what happened during World War II and Hitler with the Jews, “Never again” should have had this asterisk by it, and said, “Never again, unless we think we can invest and make profits, then I guess we can just live with some genocide,” and live with some, what the atrocities that are going on that you and I have discussed over the years—in Xinjiang, with the forced live organ harvesting of the Falun Gong, the Tibetans, the Mongolians, and the ethnic Christians—everybody in China is persecuted if you’re not Han Chinese, and using Xi thought, you’re a bad guy and they’re going to cleanse you over time.

But Wall Street just doesn’t care about that, right? They care about the next profit dollar. My personal experience is dealing with the institutional thought from the board level of the U.S., a major U.S. endowment as well as an individual level and institutional level from my own firm. I see the schism and there’s no answer to it.

I don’t know how it’s fixed, other than thank God the Biden administration basically decided to renew new sanctions on a number of companies that are deemed to be engaged in the military civil fusion of the Chinese Communist Party. So, thank God, we did that.

Now the question is, how many more of these companies can we get on this because as we know, there’s almost no company in China that doesn’t have an obligation or linkage to the Communist Party.

Mr. Jekielek: Well, no, exactly. We talked about the civil-military fusion a bit. Often, people in the West that are doing business with China imagine that it’s working by the same set of rules, by essentially free market rules.

You’ve already talked a little bit about how that’s not the case, but briefly tell me how is it structured in there in China? How does the Communist Party, where does it sit with respect to all these other structures?

Mr. Bass: I think the best analogy is they sit at the top of, called the deity structure, right? Xi Jinping is the god and wants to be stronger than God in whatever religion one professes to believe in. I think that it’s clear, no matter who you are over there, that that is the hierarchy, that’s the feudal system that the Communist Party sets forth, and I think that is so dangerous in the long run to have an entire civilization based on that hierarchy.

Now, Xi is emperor for life, right? This is back to almost the Mao ideology of the reverence that people had for Mao who killed more people than Stalin and Hitler together, right? I worry that China’s heading in a direction that none of us really want or nothing’s getting better, Jan. I think everything seems to me like it’s getting worse.

Mr. Jekielek: Is there such a thing as an independent private company in China?

Mr. Bass: No, I don’t believe so. I think everyone, every single citizen of China has an obligation to the Communist Party and to the president. I don’t believe there’s any private company in China.

Mr. Jekielek: When did you first discover that there’s something amiss here? And how did that happen?

Mr. Bass: Back to the financial crisis in 2008, my firm, people that worked with me and myself, we followed bad private assets to public balance sheets. When companies like Fannie Mae and Freddie Mac and the banking system in the U.S., as we all know, was circling the drain due to its lever and the composition of its assets, when the government stepped in to basically guarantee the bad assets on the bank’s balance sheets and to expand the central bank’s balance sheet and buy junk and buy everything that they bought, what that did was transfer the liability of the bad assets from private balance sheets to the public balance sheet.

The U.S. could do it because it didn’t have that many bad assets on its public balance sheet, on its sovereign balance sheet.

But if you remember Europe, Europe doesn’t have the same kind of central taxing authority and they have an experiment going on, but they don’t have a system by which they are really truly united. It’s all a bunch of individual countries with their own finance ministers.

There were European countries like Iceland, like Ireland, like Spain and Portugal, who had these, they had more bad assets than the public balance sheets could take. So, you saw Iceland fall almost immediately, and Ireland fell almost immediately, and then Greece. They all had that, they had the large bad private assets ended up on their balance sheets, and it broke the public balance sheet, right, because each of those countries didn’t have its own central bank. You have the ECB [European Central Bank], and the ECB couldn’t tell which child it loved the most essentially, right? So, it had a real problem.

We follow those assets around the world and then every sovereign analysis that we looked at over time back then always said, “X Japan, X Japan, X Japan,” because Japan blew the Gaussian distribution right out of the water. It wasn’t a nice bell curve. It was everything but Japan, because Japan’s up and over here.

They have so much on balance sheet debt, they have so many bad assets, they have zombie banks. So, we studied Japan, back in, call it 2009, ’10 timeframe, ’11, when Europe was collapsing and had the Greek crisis in 2011.Then that took me to China and I was trying to understand how the Chinese financial system worked.

I know their banking system was roughly three times levered to GDP. To put things into perspective, the U.S. financial system going into the financial crisis was about one times levered to GDP. If you include Fannie and Freddie and all of the off-balance sheet and nonbank stuff, it was about 1.75 times levered.

Europe’s banks in the worst cases were 10 times GDP. That was Ireland and Iceland, and then the rest were declining from there, so that’s why they broke so quickly. China was about three times GDP, and they’d grown their credit system 50 percent of GDP a year every year for five years, so no one that aggressively that quickly ever not had a banking crisis.

I was trying to understand how China’s financial system was put together, both domestically and then how that system interfaces with the rest of the world internationally, because they basically use U.S. dollars to interface with the rest of the world.

I was trying to understand the origin of their dollars. It’s a long answer to a simple question, but if you kind of take out a blank piece of paper, just try to understand the basic architecture of a system, it helps you understand the incentives of all the players and how the government operates, and then how levered they are, and then how much trouble they might be in if things go poorly. That’s where I was about 10 years ago.

Mr. Jekielek: Was there a particular “aha” moment or something where you realized, “Oh, my goodness, I’ve discovered something that I haven’t seen before” or extremely unusual or?

Mr. Bass: Yes. What was unusual is there was no safety net for the Chinese banks, i.e., there was no FDIC, Federal Deposit Insurance Corporation, right? There wasn’t a, if a bank went bad in theory, you could lose all your money as a depositor.

There are four main SOE banks and China state-owned enterprise banks. There are 12 joint stock banks, and there’s 10,000 local banks. I was trying to understand the relationships between their banks.

The “aha” moment was this concept in China where the financial professionals that the banks were selling, they were selling these wealth management products. The wealth management products were these highly levered investment vehicles and long-term assets in real estate, growth commercial, and new rezi, long-term derivative products, and they had almost a demand.

They were almost demand deposits, i.e., some wealth management products were one month, three months, nine months a year, and the duration of their assets was, call it five to 10 or 20 years sometimes. They were buying assets that had such long durations. There was a mismatch. When people ever wanted their money out, they couldn’t sell all those things, right?

That’s what happened in the U.S. in some of those structured investment products. Remember the SIBs that were famous for bringing down some of the balance sheets of the banks right away, that’s essentially what an SIB is, right? It’s an asset liability mismatch.

So, the wealth management products and the size of wealth management products as a percentage of the Chinese banking system was an “aha” moment for me, because it was so big in relation to where the U.S.’s SIBs were that I couldn’t believe that they had actually allowed it to get that big as a percentage.

But in the end, what I learned was the Chinese Communist Party can essentially control everything and its own banking system, right? It controls the narrative. It can handle any kind of propaganda. It can deliver any of the propaganda. The Chinese Communist Party can give everyone solace that they’re going to back the banking assets of any bank, and they can move on.

So, they can control the fires that then ended up burning in the banking system as we saw with Baoshang bank and now we’re seeing with even Evergrande [group] today, the Chinese Communist Party is telling banks to stress their balance sheets for one of the largest property companies in the world.

It’s a big deal. It would be on the front page of every paper here, but for some reason, people just believe that those things, that a tree can fall in the woods and no one will hear it.

So, I’ve kind of tried to understand how it works within China, but what’s more important is how China works with the rest of the world and how the dollars flow back and forth, and that relates to the rollout of the CBDC for next year.

Mr. Jekielek: You mentioned crimes against humanity, you mentioned the genocide that’s happening in Xinjiang. How does the morality of what can happen in China kind of in full view of the world impact the way they do business?

Mr. Bass: Yes, I wish it would, truthfully. When I read the China Tribunal by Sir Geoffrey Nice, I actually couldn’t believe what I was reading. I had to read it again. The witnesses that came to testify in the first tribunal, it was published by the UK. It was run by, again, Sir Geoffrey Nice, who handled Slobodan Milosevic’s War Crimes Tribunal in The Hague.

It had a very, very credible knight out of the UK and a QC, a Queen’s Counselor, issued a report that was so horrible and so damning to understand what was really going on in the organ harvesting business in China that I couldn’t believe the world continued to do business with them.

But you look at guys like LeBron James, who a lot of people look up to in the United States. He’s a woke social justice warrior in the United States, and when it comes to China and their atrocities and their behavior, he shuts down and won’t say a word.

You know why? Because his wallet gets a little bigger every year with the Chinese contract with the NBA. They pay the NBA like a billion and a half dollars a year.

China’s figured out how to shut people up—you just pay them. You pay them to shut up. I wish people’s morality actually played a role in their decisions about where to do business and who to do business with. It just doesn’t anymore. People pretend.

Mr. Jekielek: What’s at stake for the country if it keeps going like this?

Mr. Bass: I’m going to sound hyperbolic again. Look, I believe that our relationship, the world’s relationship with China is at a major crossroads today, and thank God it’s here, because you think about where we were just three or four years ago. If you said anything negative about China, one, you’re deemed to be a racist, number two, you were discounted heavily as being a Chicken Little of some sort.

Now, it’s actually in the mainstream, and we’re in the right place and people are thinking and talking and discussing China at the table.

What’s at stake? I think the stake of global primacy is not just the U.S. I don’t need the U.S to maintain global primacy. I know we currently have it today, and everyone says we’re the declining power and that China’s the rising power. I just think the developed West and the rules-based order needs to retain primacy over the world, not just one country.

This isn’t a nationalistic thing. This is a thing of, again, the rules-based order versus the Chinese Communist Party. Those are two things that are antithetical to one another, right, and so I think that’s what’s at risk, right? The rules-based order is at risk given the rise of the CCP.

Mr. Jekielek: How is that threatened exactly?

Mr. Bass: In every single facet, every aspect of life. When the Black Lives Matter movement started to really rise and bubble up in the U.S., one of its chief funders was China. If you look at the Chinese bots on Twitter, they started changing from fighting the virus rhetoric from emanating from Wuhan, they immediately switched to BLM.

They tried to sow division in a society that’s already divided, right? In the U.S., we have these huge political divisions. We have these divisions in our kind of racial makeup.

If you really look at the U.S., I’m not trying to be a denier, I think we’ve come a long way. We just had our first black president. I think there’s an acceptance across the board of all race, religion, sex, ad maybe I’m just, I’m blind to pervasive racism, but they’ll always be some.

I think we’ve come a long way from where we were in the 1990s, in the ’80s, in the ’70s. God knows the ’50s and ’60s and the ’40s where we were in the United States. I think what’s at risk is they continue to sow division, they continue to control various industries, make the West rely more and more on China as its global supplier, and then China’s got you.

Then China, as we saw during the COVID crisis, they threatened to withhold U.S. antibiotics if we kept pushing for the origin, to understand the origin of the coronavirus. Just think about how crazy that is.

I know we’re going on short production, but what’s at risk is the manner in which the world operates, and our supply chains were so inextricably linked to China and we just have to unwind that as fast as we can. The good news is we’re doing so, and so is the rest of the West.

Mr. Jekielek: What about some of these multilateral institutions that the US is a part of, for example, like the World Bank? There’s been lots of reports of, let’s say, huge Chinese Communist Party influence in institutions like that. I guess this speaks to what you’re just talking about right now. But how does that look from your vantage point?

Mr. Bass: Yes, I think they’ve corrupted them all. I think when you look at the World Bank, they created a new hierarchy chart at the World Bank and instituted a managing director. They decided to put in, the World Bank has five sub-institutions and all five used to just have their own, call it c-suite hierarchy.

They had their own CEO, CFO, and management teams of each of these five institutions. And China created kind of a chief financial officer for all five and put a Chinese person in charge of $7 trillion worth of money flows per year.

They went into ICSID, one of the five divisions and that handles all contract disputes. They’ve been rewriting this in contracts for a long time because any financial disputes that are arbitrated globally, ICSID is pretty much the de facto standard. China has taken over, for all intents and purposes, the World Bank. Any of these, they call them supranational institutions, right?

Whether it’s the World Bank or the WHO or the UN, I mean, you and I, you’ve looked at the composition of the UN Human Rights Council. Can you believe China sits on the Human Rights Council, along with Cuba and Somalia and Pakistan?

They should call it the Unhuman Rights Council. These are the biggest perpetrators of human rights violations in the world that are so called running the Human Rights Council at the UN?

All of these supranational institutions have been kind of corrupted and infected by the Chinese Communist Party, and so I think we have to think about restructuring all of these institutions.

It’s so upsetting to me, the more and more I look and interview and talk with folks that are at these institutions that scream and cry out and say, “China has taken us over.” It’s hard to believe that we’ve allowed this to happen.

Mr. Jekielek: Let’s go a little bit more local now. In a previous interview, we’ve talked about this large plot of land that was bought by a high-level Chinese Communist Party official, building giant windmills, Mexico border, very close to a U.S. military base. Now, what is the threat of this kind of activity on U.S. soil in your mind?

Mr. Bass: Again, this kind of, it’s hard to believe, looking at what the Director of National Intelligence writes about our biggest risks are is essentially China. The defense industry in the U.S., our intelligence business, the White House, Commerce Department, State Department, everyone says China is the biggest risk to America.

And yet, here we’re allowing a Chinese PLA military member, that’s a billionaire, funny enough, based in Xinjiang, who owns two-thirds of the real estate in the capital city there, is able to put together 10 transactions or more in the state of Texas to acquire a huge plot of land.

Think about how big 100 square miles is, just think about that, and then double it. Then add a runway, add a big meeting place and put it right in between the most active military training base for our Air Force, which is Laughlin Air Force Base, and the U.S. border between Texas and Mexico.

Add in the fact that 95 percent of the fentanyl that comes into the U.S. comes from China through Mexico. Then take a former Chinese general and let him say that he wants to buy a wind farm and he wants to build a wind farm in a place where there’s not much wind.

He wants to build 700-ft wind turbines as big as the Washington Monument, and he wants to plug them directly into the power grid of the state of Texas and therefore, the U.S.

Can anyone think that’s a good idea? Can anyone at CFIUS say that being within 10 miles of that airbase and restricted air envelope and the U.S. border is a good idea, and plugging directly into our power grid? Just think about what could go wrong, Jan.

We can’t allow this as a country. The good news is the state of Texas just decided to stop it with a little bit of help from me and my friends. But it just took some common sense and some work to stop that from happening. But the Federal Government should have stopped that from happening.

I still, to this day, I’m not sure how that got through a CFIUS review. And maybe one day we’ll learn, but let’s hope CFIUS is really going to look into this.

Mr. Jekielek: So, 200 square miles of Texas, you would think someone might have noticed this along the way, as you were suggesting. How did you notice it?

Mr. Bass: I was flying in to look at a beautiful piece of kind of pristine land on a river on the Texas border that is a spring-fed river. It’s one of the most beautiful places in the state. I’ve never visited. I’ve had so many friends talk about it, so I arranged a visit.

I landed and had a young man that manages one of the nearby ranches pick me up. It was funny, we were talking about the ecological aspects of the property and we were driving down a dirt road.

He casually pointed across me, I was in the passenger seat, and he said, “That’s where the Chinese headquarters is down here.” And I said, “Excuse me?” He said, “I know you do a lot on China.” He said, “I follow you on TV,” he says, “But that’s where the headquarters is down here.”

And I said, “Stop the car.” And he said, “Oh, no, they have cameras everywhere. They’ll come after me.” I said, “We are in Texas in the United States, they’re not coming after you. Stop the car.” And we stopped.

I got out and I had him explain to me exactly what he meant. He said, “This was their primary ranch. They had put together a series of 10-plus ranch transactions through a businessman in Lufkin, Texas, area as their front man, and they were able to kind of parcel together at least 130,000 acres of property.”

I think it’s a little over 640 acres, is a square mile, so we’re talking about literally 200 square miles of the state, and he was able to acquire the Blue Hills Wind Farm Project as well as another wind farm that was kind of defunct at that time. And he said, “This is their lodge. They have a runway that they’re extending.”

I’m thinking to myself, “South China Sea, I know what that looks like, and in the Spratlys.” And I looked at Google Maps, and I watched them build those runways. I don’t know if you get up in the middle of the night and look at Google Maps, but I do.

I’m thinking, “Why on earth would a Chinese general from Xinjiang need a long runway in between the Texas border and our military base?” It just doesn’t make any sense to me.

And so I literally hopped in over it. I had the locals explain to me what they knew about it, and then I inquired in D.C. as to what if any CFIUS review had been done or was being done and where were we in that process.

At that time, I was told, again, I was told it had passed through an initial CFIUS review, but it still needed what they call the mitigation agreement with the Air Force because of their runway. When you build a 700-ft tall windmill and you put these things called over-the-top transponders, the newest technology can map anything that drives by, flies by, or walks by within a 40-mile radius.

Well, they were well within a 40-mile radius of the Air Force base and the border, and so I just found that to be a nonstarter. Then, when I heard that they were going to take their windmills and plug directly into the power grid, that was also one of these moments where you think, “Why would we ever let anyone from China, Russia, North Korea, or Iran plug into our power grid just to get started?”

Then we had the ice-pocalypse here in Texas, was it the late January, early February timeframe, and we actually experienced the fragility of our grid, right?

That was good news because while some people in the Devils River Conservancy and the locals had been kind of sounding the alarm bells about the Chinese general owning property, former general owning property in South Texas, but it was kind of falling on deaf ears.

There were a couple of congressmen—Will Hurd who used to be on the Senate House Intelligence Committee and with the CIA—had written a couple of articles about it, but nothing had really gotten traction for some reason.

I started becoming more vocal about it and trying to get some more attention, and then all of a sudden, because of, I think, the fragility of the grid, we were able to really dial up the intensity about plugging directly into the grid.

We capitalized on that and got a bill written in Texas and got it passed. It was called The Lone Star Infrastructure Protection Act, which basically disallowed anyone from Russia, Iran, China, and North Korea from interfacing with critical infrastructure in the State of Texas.

It passed the Senate 31–0. What passes these days like that where you get every Democrat and every Republican to agree with you? The good news is, it happened, and it’s happening on China.

Think about the Hong Kong Human Rights and Democracy Act that went through the U.S. House and Senate. It passed unanimously. I think there was one jerk that voted against it, but other than that, it really, it went almost unanimous.

So, in this incredibly polarized, divided world, there actually is consensus, and it’s about China and China’s malign intent all over the world.

What happened back in Texas was just a moment where I couldn’t believe that it had already happened and that it was about to be sealed. I was just hoping that Air Force wasn’t going to give their mitigation agreement. I went up through the channels of the government that I know and tried to make sure that that wasn’t going to happen and I had some sympathetic ears.

Mr. Jekielek: But this isn’t the only land that’s actually been purchased by people affiliated or with the Chinese Communist Party.

Mr. Bass: Yes, so if you look at the last two deals that CFIUS basically disallowed or cancelled, they were both during the Obama administration, and they were both based upon or due to their proximity to critical U.S. military bases.

What needs to happen, Jan, I think what this Texas scenario is going to serve as, it’s going to serve as, let’s call it our Sputnik moment, our wake up call—our wake-up call to try to understand, let’s just take critical infrastructure as an asset, class, or category. Let’s break it down into military bases. Let’s break it down into power plants, nuclear power plants, water treatment facilities, sewage facilities. However you want to think about telecom networks, right?

When you think about, when I think about critical infrastructure, I can draw out a Venn diagram of what I deem to be critical, and why don’t we put our intelligence business and even our military on, and maybe even civilians.

Look, I’m just a concerned civilian. I cared a lot about what happened in Texas and trying to rid ourselves of this infiltration of our critical infrastructure. But I think there are many people in the United States that are patriotic and want to protect the national security of our country and there are a lot of people in real estate.

What we need them to do is help, help us understand where the Chinese Communist Party and their proxies are acquiring strategic interest in strategic positions in critical areas with proximity to military bases and other critical infrastructure.

And let’s kind of re-underwrite the ownership of property in America and try to understand where they are, so that we can get a better handle on what their motives really are and what their intent is and what their plan is.

The good news is I believe the situation in Texas has kickstarted that into some new investigations. I’m aware of a couple that are already ongoing, that are promising.

So, let’s hope that we have the government moving in one direction, and let’s have civilians in any way possible.

If you know or you think you can help, or you know that there is a company that’s a U.S.-based company funded with dollars that’s technically owned by the Chinese Communist Party or one of their proxies, please, let someone know. Reach out to your local government and let them escalate it or reach out to the federal government and let them know what you know.

I think we as a country could really fight back against this.

Mr. Jekielek: This year, the Chinese Communist Party is celebrating the 100th anniversary of its founding. How do you view the nature of the Chinese Communist Party?

Mr. Bass: I view everything that this Communist Party stands for as antithetical to any kind of moral good version of a population. It is almost the exact opposite, right? Everybody lives for the in-service to leadership into the Party.

No individual rights. No individual desires and goals can be said. If you step out of line, you get either get pushed off a 2-ft wall in Provence or they Jack Ma you or whatever they’re going to do. You really have no control over your own life. And if they don’t like what you’re saying and you’ve left, they’ll go after your family.

It’s basically, when you think about it, it’s like the mob, right? Once you become a gang member or a member of the organized crime units in the United States, kind of you’re in there for life, and that’s kind of how I feel about how the Chinese Communist Party operates. I think when I think about the evil, the sheer evil of the Chinese Communist Party, I think about nothing good.

Mr. Jekielek: Do you think the free world is ready, if they’re understanding that?

Mr. Bass: I’ve been wildly impressed with how quickly the narrative has changed in the last 24 months. I’m not sure the free world is ready to see kind of the inner workings and the true evil of the Party, but what I do see is the world banding together to push back.

Two years ago, if you told me that we’d be where we are today in kind of the change of the narrative and the global push back against the Chinese Communist Party, I wouldn’t have believed you. I’m very happy with where we are.

We have a long way to go, but I kind of feel like this aircraft carrier has turned. It took a long time to turn it, but we’ve turned it. And we’re headed kind of at them instead of letting them land all over us. I think it’s going to be something that’s, I’m encouraged at our direction.

Mr. Jekielek: Kyle, any final thoughts before we finish up?

Mr. Bass: The Chinese Communist Party is the largest existential threat to the rules-based order that’s ever existed. I think that their economic plans, their kinetic plans, their malign intent with the cyber world, all of those things put together. and I know those are all big buckets to be looking at, but our big pills to swallow—all of those things together represent such an existential threat to the manner in which we live and operate and live our day-to-day lives in the developed West, not just the U.S., the developed West.

I think that now is the time for us to be thinking about how we mobilize both the military side of things, the governmental side of things, and the civilian side of things against this threat, and think about understanding their unconventional warfare. I think once we get a better view of how that war plan is, let’s say, laid out, I think we can really start pushing back.

I’m really encouraged about what I’ve been seeing lately the last two years about trying to understand that architecture and also what, how, and where to push back.

Mr. Jekielek: Kyle Bass, such a pleasure to have you on again.

Mr. Bass: Thank you. Pleasure to be here, Jan.

This interview has been edited for clarity and brevity.

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