Saturday, April 10, 2010

Chanos: China is “on a treadmill to hell,”

China’s property market is a bubble that may burst by as early as this year, according to hedge fund manager James Chanos.

The world’s third-biggest economy may need to keep up the pace of property investment because up to 60 percent of its gross domestic product relies on construction, said Chanos. The bubble may begin to “run its course” in late-2010 or 2011, he said in an interview on “The Charlie Rose Show” that will air on PBS and Bloomberg TV.

China is “on a treadmill to hell,” said Chanos, who said in January the nation is Dubai times a thousand. “They can’t afford to get off this heroin of property development. It is the only thing keeping the economic growth numbers growing.”

Chanos is correct about the Chinese housing market being a bubble, however, it is always tough to call the top on these things. As I have stated before, they can go on for years.

The one indication that the bust may come sooner rather than later are continued indications that China may be slowing money supply growth. If this is indeed the case, and it is very near impossible for an outsider to get a sense for how accurate the money supply numbers from China are, then the bubble could break very soon.


  1. Shaun Rein wrote an interesting rebuttal to Chanos a couple of months ago in Forbes. He concluded with:
    "Chanos has an excellent track record in divining the future. However, part of his job as a short seller is to make money by causing markets to question good things. That can be useful for keeping companies honest and in check. But in this case he clearly doesn't understand the economic system he's talking about. China is not in imminent threat of collapse, and investors and companies are wise to stay involved with it, as Rogers argues."

    Unfortunately it is difficult to sort thru the rhetoric of Chanos and Rein. Chanos throws around "free market" like language about Chinese government inflation and speculating that it might be generating a real estate bubble and Rein seems to think that the Chinese regulators are more responsible than the FED in maintaining a more prudent lending environment. Neither story is wholly convincing. However, the fact that Rein lives in China and may be more knowledgeable about this complex economy and the fact that Jim Rogers actually moved to China to take advantage of its growth while Chanos is a relative new comer to China makes me think there may be more strength to the Chinese economy than meets the eye. Perhaps the best strategy is proper money management that plans for upside potential while protecting against a possible downturn.

  2. This is a tough one. There is something to be said for the fact that Rogers and Rein live in China or spend a lot of time there. On the other hand, when you are there and benefiting from the bubble, it is hard to see the distortion. What happened in Tokyo in the 80s seem silly today, but back then critics were regarded as silly or cynical.