Jim Chanos on China: 'It's Worse Than You Think'

newsmax ^ | 21 Aug 2015

[dennisw]

Short-seller Jim Chanos, who has been bearish on China's economy for several years, has a disturbing insight on China: “It’s worse than you think.”

“Whatever you might think, it's worse," he told CNBC.

He spoke as worries of a deepening China economic slowdown intensified Friday after a private survey showed the factory sector shrank at its fastest rate in almost 6-1/2-years in August, hammering global stocks and commodity prices.

U.S. stocks dropped sharply for a second day following a sell-off in major indexes around the world on the growing evidence that China's economy is slowing. The Dow Jones industrial average fell 296 points, or 1.7 percent, to 16,694 as of midday Friday Eastern time.

Chanos did not classify the drop as a correction or a bear market. But he noted that the years long bull market in the U.S. shows that "we've gotten a little complacent."

Earlier Friday in China, the preliminary Caixin/Markit China Manufacturing Purchasing Managers' Index (PMI) stood at 47.1 in August, well below a Reuters poll median of 47.7 and down from July's final 47.8. Special: New Probiotic Fat Burner Takes GNC by Storm

It was the worst reading since March 2009, in the depths of the global financial crisis, and the sixth straight one below the 50-point level, which separates growth in activity from contraction on a monthly basis.

"Uncertainty about China growth is now the main swing factor in markets," "Today's data reinforced the doubts about global growth."

Chanos said the Chinese government's reaction to a stock spike, "panic responses" from investors and recent currency devaluation has "given investors pause."

"People are beginning to realize the Chinese government is not omnipotent and omniscient," he said. "In fact, like many of us, sometimes they don't have a clue."

[precisionshootist]

Yet it will go right back up on Monday due to the bla bla bla.

I've figure out one thing about corp America and the stock market and that's that it's now significantly in bed with big government. As long as the left is in power the market will increase in value because it grows with government.

It's the one area Trump will not be able to make great again. Limiting government will limit corp America to gains only achieved by true market success and those are actually not what is being reflected in the market today.

[C. Edmund Wright]

...but....but....but.....I thought China was kicking our butts....I thought being obsessed with China was the key to bringing our economy back.....I heard someone could negotiate away all our economic problems with China.....

[SeeSharp]

because it grows with government.

That's a symptom, not a cause. The "root cause" is that the Fed will always print money to bail out Wall Street. It's why the Fed was created in the first place.

[nathanbedford]

If I wanted to be snarky I might comment that Jim Chanos has been predicting the imminent crash in China for several years but that would be unfair. Some years ago when he was standing almost alone against the Chinese miracle he exposed the Potemkin nature of much of the Chinese economy. Yes, it is easier to predict a secular event such as China is probably now enduring but it is much more difficult to get the timing right. Many an investor has gone broke being right at the wrong time.

If the situation breaks down badly it will have several lessons for us as conservatives. We might claim vindication that a top-down command economy can rev-up a startup economy but sooner or later the complexities get out of hand. The lesson of the Japanese in the 1970s and 80s comes to mind as does Milton Friedman's recital of the example of the complexity of manufacturing a simple pencil.

A breakdown in the Chinese economy will no doubt reignite the internal battle between the predominant conventional wisdom voiced in the classic debate by John Maynard Keynes and the conservative version served up by Milton Friedman aligned in spirit with the Austrian school. If a crash is coming count on the Republicans to miss an opportunity to effectively blame theories of state intervention epitomized in China and pursued by Obama and urge the resumption of economics of the von Mises school pursued by Ronald Reagan which gave us thirty years of unprecedented prosperity.

I have been preaching for a couple of years now that an economic setback could occur and it could be severe in which case conservatism ought to press its case not just for a straight political victory but in support of reforms enacted through Article V. I have believed that it will take some sort of black swan event to get constitutional reforms passed, we might be on the very threshold of just such an event.

[Mr Apple]

"panic responses" from investors

For those of us who have stocks, and if we want to enjoy the rest of this weekend, let's tell ourselves that this sell off yesterday was simply "panic responses"
Better then whimpering till Monday.

[Alberta's Child]

Good points, but the unhealthy relationship between Big Government and Big Business in this country has been going on for as long as the nation has existed. Go back and see how dominant the railroad industry used to be in this country. Most of the companies in the original Dow Jones Industrial Index were railroads.

And the clothing company Levi Strauss put itself on the map by selling uniforms to both sides during the Civil War.

[odawg]

“.but....but....but.....I thought China was kicking our butts....I thought being obsessed with China was the key to bringing our economy back...”

In other words, you believe that all those manufacturing jobs that have been moved to China has no impact on our economy whatsoever?

[Eric Pode of Croydon]

The manufacturing jobs that moved to China did so because Chinese wages were cheaper than buying and installing robots to do those jobs in the United States.

Make it a requirement to manufacture Stateside and you'll quickly see how affordable those robots become.

It's funny how many freepers who would cheer for burger-flipping robots to replace those $15/hour "minimum wage" employees at Burger King don't see this.

The days of millions of Americans standing at assembly lines, putting bolts on washing machines or snapping tubes into TV chassis, are, simply, over.

And what we have to do is to figure out how to make an economy work when those jobs just do not exist any more.

[odawg]

“The manufacturing jobs that moved to China did so because Chinese wages were cheaper than buying and installing robots to do those jobs in the United States.”

Businesses are developing robots as fast as they can, here and overseas. I think the Japanese are ahead of us. Car manufacturers use robots on the assembly line extensively, but Ford still wants to build a plant in Mexico.

I once heard on the radio an old economist explain how and why that the problem with buying products from overseas is that when you buy something manufactured overseas, the money and the jobs goes overseas.

[silverleaf]

And China and the rest of the “ emerging markets” need to figure out where to sell their stuff when the dollar tanks ( by design or by inevitability )

Can China surf the wave of the great unwinding when it comes? Has it already started?

It seems to me that in the last 2 weeks China fired the first shots or at least a major barrage in a currency war so what is the end game and what is obama doing about from the bunker ( golf course bunker) in Martha’s Vineyard?

Ramblings, I know, but it sounds like some deep insiders are quite gloomy that something really really broke badly last week and the fixes of 2008 are nonstarters this time

[silverleaf]

Interesting that Trump last night referred to Mexico as the “ new China”

Consider the implications

[txrefugee]

And if China really crashes, it may want the $1.4 Trillion back that it has loaned the USA. Unfortunately, all we have left in the US Treasury is a stack of bonds that are decreasing in value, thanks to the machinations of the Federal Reserve, and a battered ledger that shows we owe $18 Trillion to creditors.

Hold on to your land and your water, if you're blessed enough to own those.

[C. Edmund Wright]

No X 2 - not what I said - but those with superior understanding of economics understand that change is constant, jobs always move around - and new opportunities open up as a result. Those with a shallow inferior misunderstanding of economics can only look at the tangible and the immediate with no situational awareness of how free economies work.

And NO - I didn’t say it has an impact whatsoever, but again, those with a superior understanding realize that A: most of this is self inflicted by American liberals and NOT the chicoms and B: there’s a reason creative destruction is both creative and destructive. Again, the shallow mind cannot contemplate it, which is probably your issue.

The best thing to happen to American auto makers - in the long run - not to mention 325 million American citizens - is severe competition from Japanese and German auto makers. This competition didn’t HURT America in the long run, it HELPED America in the long run. Again, the superior mind V the shallow mind.

[pieceofthepuzzle]

IMHO China has most certainly been kicking our butts, and the butts of many developed nations around the world. They were able to do this, in part, because businesses were happy to take advantage of cheaper labor and manufacturing costs in China, and consumers were more than happy to take advantage of lower prices. A lot of this was helped along by China’s government intervention and subsidizing of their own industries.

The problem for China is that they are dependent on selling their products to the same countries that have lost jobs to China. When you contribute to a slowdown of the economies of the countries you sell to, eventually the purchasing power of those countries will decrease, and they won’t buy as many of your products. China’s devaluation of their currency is one way to try to deal with this, but it would only be a temporary fix if it had worked at all.

[RFEngineer]

” Interesting that Trump last night referred to Mexico as the “ new China”

Wait until China totally crashes and millions to tens of millions of Chinese come to our shores practically overnight. They’ll walk across our southern border.

[rbg81]

I went on a business trip to China a few years ago. The trip totally altered my view of China. Went there with the expectation that they were 10 feet tall. Came back thinking they were midgets.

Aside from a few projects that are very well done (the Beijing International Airport and Subway system), China has a lot of problem. Pollution is a big problem. There is a lot of building, but that building is often of poor quality. I saw several relatively new buildings that were already falling apart. One dormitory had the entire first floor vacant due to mold problems. In fact, the pre-Revolution buildings are often superior to the newer ones. The traffic is a spectacular mess. It is clear there is a lot of mis-investment and uneven development. You see new hi-rises right next to hovels. The biggest surprise was the extent to which the Chinese don’t follow rules. They ignore cops, traffic signals, and regularly cut in front of others in lines. True, I did not go to Shanghai (which I hear is better), but Northeast China (including Beijing) is a hot mess. I left thinking that they are a Potemkin Village.

[rbg81]

And if China really crashes, it may want the $1.4 Trillion back that it has loaned the USA.

---

No biggie. The Federal Reserve will just print up $1.4T (out of thin air) to buy those bonds. They may do it directly (QE) or more likely indirectly (by funneling the $$ through US or even foreign banks). Actually now is the perfect time to do this as the US dollar is strong.

[taildragger]

"And what we have to do is to figure out how to make an economy work when those jobs just do not exist any more."

To create news ones and maybe even old ones coming back. Try these on for size.

* 15% Flat Tax
* 15% Dividend, Cap-gains and Corp/Business Tax.
* Expense everything in year one of purchase 100% no deductions for businesses, (granted depletion is one thing that would need some thought)
* Repeal Sarbanes Oxley, Dodd Frank and every Econ-Banking reform since Clinton, re-instate Glass Steegal and come up with s simple Financial Marketplace common sense set of rules.
* Repeal Obamacare, HSA-Direct Primary Care equal access via the tax code is it's replacement, Health Care becomes your only deduction, take it or loose it.

[rbg81]

I have believed that it will take some sort of black swan event to get constitutional reforms passed, we might be on the very threshold of just such an event.

---

For anyone in the US, the only Black Swan event that matters is if the US becomes unable to create $$ out of thin air. That is the ONLY thing that has kept our standard of living afloat. In the 1970s-1990s, as private sector jobs slowly evaporated, we replaced those with public sector jobs. Now, we replace lost private & public sector jobs with entitlements.

In a perverse way this makes sense as, thanks to automation and AI, we need fewer and fewer people to produce. And that trend is only accelerating. 50 years from now, it would not surprise me to see 70-80% of adults on the dole. But, again, this all depends on the Government’s ability to spend $$ is doesn’t have to sustain an ever-growing client base. If they are able to do that, we will go quietly into that good-night. Otherwise, there will be revolution...and blood.