May 22nd, 2011
China’s bubble will burst – and take Asia
with it, says Jim Chanos
By James McKeigue Feb 17, 2011
“China is heading for a fall”, says Jim Chanos – and it “will take Asia and resource economies like Australia and Brazil with it”.
Chanos, the short seller who predicted the collapse of both Enron and the US housing market, believes the Chinese property boom is a bubble that will eventually burst. Speaking to CNBC, he says: “The property crash in China will be worse than it was in America or the UK.”
He notes that “real estate values compared to GDP are like Japan in 1989 or Ireland in 2007”, and that “construction accounts for 70% of Chinese GDP”. Debt is “spiralling upwards” and there is “$4 of credit for every dollar of GDP growth”.
Many investors seem unworried because they assume that “the Chinese government can do what it wants. This is a “misconception” – when the crash comes the government will not be able to stop it.
Chanos, the founder and president of Kynikos Associates hedge fund, first made the call to short China last year and admits that it is difficult “to get the timing exact… The catalysts are obvious afterwards but not so easy to spot at the time.” He first began shorting the US housing market in 2005 and notes that the “turning point” came when “the cranes stopped multiplying and construction slowed”.
So he is prepared to wait on China. In any case, “so far it has been a good trade. China might not have collapsed but equities were down 20% in 2010”.
Chanos, who has used satellite images from Google Earth to highlight Chinese “ghost cities”, has been criticised by some fund managers for never visiting China. But he thinks “being on the ground is overrated. In fact, people in China get bamboozled the other way. They see lots of activity and think things are booming… But if that isn’t economic activity, you’re going to have a problem, no matter how good it looks. People should spend more time studying the numbers.”
(18 February 2011, 10:14PM) Complain about this comment
I agree with him. He doesn’t need to go all the way over there to see what it’s like. Google Earth is really great. If you look at images from Google Earth for your own properties, you can see approximately when the images were taken. Our house image was taken before we painted it. Our car dealership lot image was taken when the car lot was really full of cars. The street front image of the car lot was taken on a slow day when traffic was low. Doesn’t really matter, you can’t manipulate the Google Earth images. They are what they are. So if he has images from Google Earth of ghost cities, they are probably quite accurate.
(22 February 2011, 10:03AM) Complain about this comment
I agree with him, and I just spent six months living there. The empty buildings aren’t just in ghost towns…they’re everywhere. Not just Beijing or New Ordos…these rash property developments happen in every spot of extra land available. And there are innumerable luxury housing complexes that are perhaps 10-20% full. And alongside these the new construction starts continue to go up at a blistering pace. There’s a whole argument about the numbers…and then you have people like Thomas Friedman that paint the “tourist’s viewpoint” of a glimmering and obviously rising China. But on the ground….when you take the time to scratch beneath the surface..it’s painfully obvious that this recent “growth” is in name only.