Monday, January 25, 2010

Jim Chanos: China's Real Estate Bubble Is Unprecedented and How It Will Impact American Business

The bubble in China's real estate is unprecedented and it impact American business, Jim Chanos, president and founder of Kynikos Associates, told CNBC Monday.

"We are not calling for an impending crash of China or of the Shanghai stock market, but in particular the bubble that has been blown up in real estate both commercial and residential as well as other forms of fixed asset investment in china is unprecedented," Chanos said.

"I do see all of the signs of a credit induced real estate bubble that i think is going to be a doozy," he added.

He said there are about 30 billion square feet of space in construction in the commercial property sector alone.

If the bubble were to burst, it would hurt the building materials sectors and the commodity plays in the Western world, the sectors where demand depends on the Chinese construction market, according to Chanos.

"Looking at companies, I'd be very leery of companies who are exporting materials to China to build up this construction bubble," he added.

"In China, what we've seen is more and more fixed investment is needed for a dollar of GDP so they're getting less efficient, not more," he said.

"In the West, GDP growth is the residual of the free market… In China it is quite a bit of a different thing, very similar to the good old Soviet Union; GDP is a planning tool and we start with the GDP target and then figure out how it is we are going to get there," Chanos said.

Watch the Chanos interview here.

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