China's bubble will burst - and take Asia with it, says Jim Chanos

By James McKeigue Feb 17, 2011

James McKeigue

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"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."

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Published in Guru watch | More articles by James McKeigue

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  • 1.

    (16 September 2009, 01:00AM)  Complain about this comment

  • 2. Claire

    (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.

  • 3. Claire

    (18 February 2011, 10:15PM)  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.

  • 4. Jesse

    (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.

  • 5. Whereabout

    (22 February 2011, 08:07PM)  Complain about this comment

    It's true that Chanos has a history of predicting the collapse or falls of entities and economic sectors. But on the case of China he's not alone. half of world influential economist have all been predicting for decades about the fall of Chinese economy but has happened. I believe new theories have to be created about economic as a subject because everybody speaks trash.
    Even predicting the GDP forecast for just three months ahead have been a failure a recent years. What is happening with you economist and yet again they're giving another wrong prediction that would not happened or may happen only in about three decades ahead.

    People compare China to Japan, Brazil to Australia and so on. why is America not compared to Britain or Greece. I think economic have become very bias and predictions are made out of anxiety and not real economic facts.

  • 6. Vox populi

    (16 December 2011, 06:49PM)  Complain about this comment

    Despite my engrained antipathy towards hedge fund managers and the like who are in my opinion just thriving as parasitical appendix to the real businesses, I must recognize Chanos as a man with extraordinary articulacy in telling the fact from the myth, with distinguished analytical ability to penetrate the pretentious guise often deliberately presented by his peer financiers. Or I would say that all 'economists' or 'investment experts' who denied the imminent collapse of this by far the biggest housing bubble in history, knowing that house price in Beijing for instance had reached the level 100 X average annual salary, were/are either simply incredibly idiotic/naive or intentionally misleading the public under the pressure from their own vested interests (the latter being much more likely). Here is another eloquent advocate of the danger in the bubble-ridden Chinese economy; Richard Wolff . Just in case you have not seen this. http://www.youtube.com/watch?v=sfJgNeN2M64

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