BEIJING (REUTERS) - Several major hedge funds are piling into bets that China's currency will decline against the US dollar, setting up a showdown with the world's second-largest economy, according to The Wall Street Journal.

Hayman Capital Management has invested about 85 per cent of its portfolio in bets against the yuan and the Hong Kong dollar, and Greenlight Capital holds options that pay off if the yuan falls. Hedge fund managers Stanley Druckenmiller and David Tepper have also taken positions against the Chinese currency, the Journal said, citing people familiar with the matter.

The bets are in the billions of dollars, including borrowed money, said the paper.

"When you talk about orders of magnitude, this is much larger than the subprime crisis," said Hayman Capital Management founder Kyle Bass. He is betting the yuan could fall as much as 40 per cent over the next three years.

The bets reflect the multitude of pressures on China's currency, including a slowing economy, unsteady financial markets and persistent capital outflows that have diminished the country's formidable foreign reserves.

At the same time, the US dollar has risen steadily against other currencies as the relative strength of its economy has compelled the Federal Reserve to raise interest rates for the first time since the 2009 recession.