Kyle Bass: Why America is Already Fighting a Second Cold War with China—And Losing

Kyle Bass argues that the US is already engaged in a multi-front cold war with China involving cyber attacks, economic warfare, and narrative manipulation, while American capital markets unwittingly fund China's military and surveillance apparatus.

Key Takeaways

• The US is fighting three types of war with China simultaneously: cyber war, narrative war, and economic war, with only kinetic warfare remaining
• China operates 1-3 million Uyghurs in concentration camps in Xinjiang, conducting organ harvesting while alive and tissue-typing prisoners for scheduled transplants
• Hong Kong's banking system is leveraged 900% of GDP with private sector debt at 300% of GDP, making a banking crisis inevitable as the peg comes under pressure
• The Hong Kong Monetary Authority has only $35-57 billion in usable reserves to defend the peg, far less than the reported $436 billion total reserves
• Over 700 Chinese companies are listed on US exchanges, including military contractors and surveillance companies, using American capital to fund China's defense apparatus
• American investors buying Chinese stocks like Alibaba own nothing—they hold shares in Cayman Islands entities with no claim to actual Chinese assets
• The fundamental schism in US policy pits Wall Street and corporate America (who profit from China) against intelligence agencies and military (who view China as the primary threat)
• China uses genomic sequencing companies to collect DNA data on Americans while developing ethnically-targeted biological weapons
• George Soros recently called China America's "mortal enemy" after decades of supporting globalization and engagement policies
• Chinese companies avoid US audit requirements and compliance standards while accessing American capital markets without reciprocal treatment

Timeline Overview

• 00:00–12:45 — Cold War Framing and Xinjiang Context: Bass explains why US-China relations represent a new Cold War, detailing the concentration camps in Xinjiang holding 1-3 million Uyghurs with crematoria and systematic organ harvesting
• 12:45–25:30 — Hong Kong Crisis and Economic Collapse: Discussion of Hong Kong's political crisis, economic deterioration, and the impossible situation of youth fighting against Communist Party control over their Western-oriented society
• 25:30–38:15 — Hong Kong Dollar Peg Vulnerability: Analysis of Hong Kong's currency board system, extreme leverage (900% banking system, 300% private sector debt), and why the economy faces fundamental restructuring
• 38:15–50:48 — Foreign Exchange Reserves Reality: How Hong Kong Monetary Authority's $436 billion reserves are actually only $35-57 billion usable, with capital flight accelerating and quantitative tightening beginning
• 50:48–63:21 — China's Dollar Shortage and Hong Kong's Role: Why Hong Kong serves as China's "golden goose" for raising US dollars globally, and how banking crisis threatens this critical financial lifeline
• 63:21–76:06 — Chinese Companies in US Markets: Revelation that 700+ Chinese companies list on US exchanges, including military contractors, while American investors own worthless Cayman Islands entities instead of actual assets
• 76:06–88:39 — Regulatory Capture and Audit Failures: How China manipulated US regulations to avoid standard audit requirements through PCAOB agreements, while foreign nationals pay no taxes on US investment gains
• 88:39–101:24 — The Great Policy Schism: Analysis of the fundamental divide between US intelligence/military (viewing China as primary threat) versus Wall Street/corporate America (profiting from China relationships)
• 101:24–114:09 — Four Types of Modern Warfare: Explanation of cyber war, narrative war, economic war, and kinetic war, with China actively prosecuting the first three against the United States
• 114:09–126:42 — Economic Warfare and Genomic Espionage: How China subsidizes industries to destroy US competitors, controls critical drug manufacturing, and collects American DNA data for biological weapons development

The New Cold War: Three Fronts Already Active

Kyle Bass argues that the United States is already engaged in a comprehensive cold war with China across multiple domains, with only traditional kinetic warfare remaining dormant. This represents a fundamental shift from economic engagement to strategic competition that American policymakers have been slow to recognize.

• "There are four kinds of war today and we're fighting three of them with China as we speak" - cyber war, narrative war, and economic war are already active conflicts
• Cyber warfare involves daily attacks "from PLA installations" targeting American infrastructure, government systems, and private companies
• Narrative warfare includes influence operations through "their quote news media which is propaganda" and providing "special access" to American elites who become China advocates
• Economic warfare encompasses subsidizing industries to destroy US competitors, controlling critical supply chains like pharmaceuticals, and using American capital markets to fund Chinese military development
• The engagement paradigm established with China's 2001 WTO entry was based on false assumptions that "if we allowed them to taste Western capitalism, they would liberalize their capital account and become more Western"
• Even George Soros, the "poster child for globalization," recently declared China "our mortal enemy" after decades of supporting engagement policies

Xinjiang: Modern Concentration Camps and Organ Harvesting

The systematic oppression in Xinjiang represents what Bass characterizes as "full cultural genocide" comparable to Holocaust-era atrocities, involving 1-3 million Uyghurs held in camps where organ harvesting occurs on an industrial scale.

• Xinjiang province in northwest China holds "somewhere between one and three million ethnic Uyghurs in concentration camps that they call reeducation camps"
• Intelligence agencies recognized the severity when "we noticed crematoria being built at each of these centers" with the grim observation that "they're not electing a new pope every time white smoke comes out"
• The UK's China Tribunal, led by the prosecutor from Slobodan Milošević's war crimes trial, concluded after interviewing 200+ witnesses that systematic organ harvesting occurs
• Prisoners are "tissue typed and blood typed" upon arrival, then "paralyzed while they're awake" as organs are harvested, creating a system where "you can schedule an organ transplant" in China
• The waiting list for organs in China is "three days" compared to "a year and a half" in the US, indicating systematic harvesting from living prisoners
• Israel banned organ tourism to China after a doctor reported his patient scheduling a heart transplant there one month in advance
• Cultural genocide involves "taking parents away from their kids, putting their kids in remedial grade schools, bulldozing graveyards to remove any cultural attachment or religious attachment to the land"

Hong Kong: Financial Crisis Meets Political Crisis

Hong Kong's extreme financial leverage combined with political upheaval creates an unsustainable situation where banking crisis appears inevitable, threatening China's primary source of US dollar funding.

• Hong Kong's banking system is leveraged "900% of GDP" - the same level that caused Iceland and Ireland to collapse during the European financial crisis
• Private sector credit to GDP reaches "300% in Hong Kong" compared to 150% in the highly leveraged US and Japanese economies
• The property bubble has driven median home prices to "21 times median income" versus 6.5 times at the peak of US subprime crisis
• Hong Kong experienced "the best ten years they will ever have" from 2008-2018 when US zero rates coincided with China's double-digit growth, creating massive capital inflows
• Now the economy faces "the converse" with recession, political crisis, and capital flight creating "quantitative tightening in the most levered developed country in the world"
• Youth protests are driven partly by economic desperation as zero interest rates globally made "asset prices become very high" while "the middle class has to rent those assets and pay such high rent levels they can't afford it"

The Peg That Can't Hold: Hong Kong's Reserve Reality

The Hong Kong dollar's peg to the US dollar faces unprecedented pressure as usable foreign exchange reserves prove far smaller than officially reported, while extreme domestic leverage makes defending the peg economically catastrophic.

• The Hong Kong Monetary Authority claims "$436 billion" in foreign exchange reserves, but Bass calculates only "$35-57 billion" can actually be used to defend the peg
• "You can't use cash that's on deposit at your central bank from other central banks, you can't use private equity imports" - only liquid, usable assets count for peg defense
• Hong Kong experienced "$20 billion run in one month in August" representing "the biggest drawdown since the peg's beginning 36 years ago"
• Chinese banks in Hong Kong are offering "11% for seven-day money on new money" for Australian dollars, indicating "a pretty big panic going on already"
• All Hong Kong mortgages are "indexed to one-month overnight HIBOR rate and reset every month," meaning interest rate increases immediately impact every homeowner
• The peg creates impossible choices: defend with higher rates (crushing the leveraged economy) or allow devaluation (breaking the 36-year currency board system)
• When pegging "you're basically seeding your monetary policy" to another country, requiring perfect economic synchronization that no longer exists

Chinese Corporate Infiltration of US Markets

Over 700 Chinese companies access American capital markets while avoiding standard regulatory compliance, with many representing military contractors and surveillance companies that use US funding to develop capabilities against American interests.

• Chinese companies have "borrowed $1.1 trillion" in US and international markets over just the past five years as their trade surplus declined
• Companies like Alibaba listed on US exchanges represent "variable interest entities in the Cayman Islands" where American investors "don't own anything" and have "no claim to the assets in China"
• Military and surveillance companies access US capital: "Hikvision which makes surveillance technology used in concentration camps" and "China Shipbuilding which builds military submarines and aircraft carriers"
• These companies avoid standard US audit requirements through a 2013 PCAOB agreement allowing Chinese companies to skip "covered audits" that all US companies must undergo
• Xinjiang province itself "sold $200 million worth of bonds" in US markets, while "the World Bank lent Xinjiang $150 million for education purposes" - funding the concentration camp system
• Foreign nationals investing in US markets "don't pay any tax" on capital gains, creating an asymmetric advantage while using American legal systems for dispute resolution
• The regulatory capture represents "unconscionable" policy where "Chinese companies are raising money in the US from unsuspecting US investors without basic covered audits"

The Great American Schism: Wall Street vs National Security

A fundamental divide exists between American financial interests that profit from China relationships and national security establishments that view China as an existential threat, creating policy paralysis and strategic vulnerability.

• US intelligence agencies list China as one of four "hard target countries" considered enemies in the Intelligence Authorization Act of 2019
• The military identifies China as "the number one risk to our military over the next 20 years bar none, nothing's even close"
• The National Security Council "thinks China is our number-one enemy and we work day and night against it"
• Meanwhile, "Wall Street and corporate America are the two biggest lobbying firms for China" through "billionaire CEOs that do business in China" and "Wall Street firms that can't wait to issue another IPO"
• China exploits this by bribing "the few" - giving special access to billionaires who "get a casino license" or can "sell cosmetics here," creating advocates who "lobby the president and Congress on China's behalf"
• The American population has been "lulled to believe that cheap t-shirts and electronics from China are a good thing" while ignoring national security implications
• This mirrors the "schism that existed in the interwar years leading up to World War II between industrialists and financiers" versus American foreign policy

Economic Warfare: From Steel to DNA

China prosecutes systematic economic warfare by subsidizing industries to destroy American competitors while gaining control over critical supply chains and strategic resources, including American genetic data.

• China has captured "almost 100% of the generic drug business" including "mission-critical drugs like heparin for dialysis patients" where they "could just stop sending it and we'd be in a real problem"
• Genomic sequencing represents a strategic vulnerability where Chinese company BGI "does the overwhelming majority of all the sequencing of US genes" by pricing services at "$2" versus American companies' "$1,400" cost
• "China has the genomic sequence of every single person that's been gene-typed in the US and they're developing bio weapons that only affect Caucasians"
• The pricing strategy mirrors other industries: "they subsidize businesses they want to take over and operate at an economic loss" to destroy American competitors in aluminum, steel, and pharmaceuticals
• This represents "state-driven" economic warfare where commercial competition becomes impossible because "we can't" operate at systematic losses while China can through government support
• American companies unwittingly participate by using Chinese genomic sequencing services, not realizing "who's actually sequencing your genome" or the strategic implications

Hong Kong as China's Golden Goose

Hong Kong serves as China's primary conduit for raising US dollars globally, making the territory's financial crisis an existential threat to China's ability to fund imports and service dollar-denominated obligations.

• China is "desperately short dollars" and "short energy, short basic materials, short base metals, short food" requiring imports paid in hard currency
• "They can't pay RMB for it because no one takes monopoly money" due to China's closed capital account system
• Hong Kong represents where China "raised the majority of their US dollars globally" through corporate listings and bond issuances
• Chinese companies use Hong Kong markets because "money's fungible" - when companies like "$0.10 issues a bond in Hong Kong, those dollars actually go to China Inc, they don't really go to $0.10"
• The Chinese central bank consolidates these flows: "they can show it on $0.10's balance sheet but they can use the dollars somewhere else"
• A Hong Kong banking crisis threatens this system: "their banks are gonna blow up and when you have something that's this tightly wound...there is no putting Humpty back on the wall"
• For China, "maintaining power supersedes" economic concerns about Hong Kong, suggesting they'll sacrifice the financial center to maintain political control

China's systematic approach to undermining American power while exploiting American openness represents what Bass characterizes as the greatest strategic challenge facing the United States. The convergence of human rights atrocities, financial manipulation, and economic warfare suggests a comprehensive strategy to displace American global leadership while Americans remain largely unaware of the scope and nature of the challenge.

Practical Questions and Answers

Q: What evidence exists that the US is already in a "cold war" with China?

A: Bass identifies three active fronts: daily cyber attacks from PLA installations, narrative warfare through propaganda outlets and elite influence operations, and economic warfare through subsidized competition and supply chain control. Only kinetic warfare remains dormant, making this a comprehensive cold war scenario.

Q: How do we know about the organ harvesting in Xinjiang concentration camps?

A: The UK's China Tribunal, led by the prosecutor from Slobodan Milošević's war crimes trial, interviewed 200+ witnesses including escaped prisoners and doctors. The evidence includes 3-day organ waiting times (vs 1.5 years in the US) and scheduled transplant appointments, plus tissue-typing of all prisoners upon arrival.

Q: Why is Hong Kong's financial situation so dangerous?

A: Hong Kong has extreme leverage with banking system debt at 900% of GDP and private sector debt at 300% of GDP—levels that caused Iceland and Ireland to collapse. Combined with political crisis and capital flight, this creates inevitable banking crisis in the world's most expensive, leveraged economy.

Q: How much can Hong Kong actually use to defend its currency peg?

A: While reporting $436 billion in reserves, only $35-57 billion consists of usable liquid assets. You can't defend a peg with illiquid investments or deposits from other central banks. With $20 billion outflows in August alone, the usable reserves are rapidly depleting.

Q: What do American investors actually own when they buy Chinese stocks like Alibaba?

A: They own shares in Cayman Islands "variable interest entities" with no legal claim to Chinese assets. In bankruptcy or political crisis, American shareholders "don't own a thing" - it's a tracking entity with no enforceable rights to actual Chinese company assets.

Q: How did Chinese companies avoid standard US audit requirements?

A: The PCAOB (Public Company Accounting Oversight Board) signed a 2013 agreement with China's securities regulator allowing Chinese companies to skip "covered audits" required of all US companies. This regulatory capture lets Chinese firms raise American capital without standard compliance.

Q: Why don't American policymakers respond more aggressively to these threats?

A: A fundamental schism exists where US intelligence, military, and National Security Council view China as the primary enemy, while Wall Street and corporate America lobby for China because they profit from the relationship. China exploits this by giving special access to billionaires who become advocates.

Q: What is China doing with American genetic data?

A: Chinese company BGI dominates US genome sequencing by pricing services at $2 versus $1,400 American costs. They collect DNA data on every American who gets genetic testing and are reportedly "developing bio weapons that only affect Caucasians" using this comprehensive genetic database.

Conclusion

The analysis reveals a comprehensive strategic challenge where China exploits American openness and capitalist incentives to advance authoritarian objectives while systematically undermining US strategic advantages across multiple domains simultaneously.