Posted on 01/09/2010 9:50:28 AM PST by Steelfish
Contrarian Investor Sees Economic Crash in China
David Barboza January 8, 2010
James S. Chanos built one of the largest fortunes on Wall Street by foreseeing the collapse of Enron and other highflying companies whose stories were too good to be true.
Now Mr. Chanos, a wealthy hedge fund investor, is working to bust the myth of the biggest conglomerate of all: China Inc.
As most of the world bets on China to help lift the global economy out of recession, Mr. Chanos is warning that China's hyperstimulated economy is headed for a crash, rather than the sustained boom that most economists predict. Its surging real estate sector, buoyed by a flood of speculative capital, looks like "Dubai times 1,000 -- or worse," he frets. He even suspects that Beijing is cooking its books, faking, among other things, its eye-popping growth rates of more than 8 percent.
"Bubbles are best identified by credit excesses, not valuation excesses," he said in a recent appearance on CNBC. "And there's no bigger credit excess than in China." He is planning a speech later this month at the University of Oxford to drive home his point.
As America's pre-eminent short-seller -- he bets big money that companies' strategies will fail -- Mr. Chanos's narrative runs counter to the prevailing wisdom on China. Most economists and governments expect Chinese growth momentum to continue this year, buoyed by what remains of a $586 billion government stimulus program that began last year, meant to lift exports and consumption among Chinese consumers.
Still, betting against China will not be easy. Because foreigners are restricted from investing in stocks listed inside China, Mr. Chanos has said he is searching for other ways to make his bets, including focusing on construction- and infrastructure-related companies that sell cement, coal, steel and...
(Excerpt) Read more at finance.yahoo.com ...
“China is not in a bubble.”
That is what they all say right before the buble bursts.
I don't have a Wall Street fortune but I have been calling China the great Potemkin economy for years now, for just this very reason--it' s what totalitarians and especially communists excel at--lying through their cavity-ridden teeth.
Common sense and an awareness of history enables one to read these clowns like a book.
Water is wet.
Still, betting against China will not be easy. Because foreigners are restricted from investing in stocks listed inside China, Mr. Chanos has said he is searching for other ways to make his bets, including focusing on construction- and infrastructure-related companies that sell cement, coal, steel and iron ore.
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This paragraph tells me this guy is likely to fail regardless if he is correct or incorrect.
Headline?
Red China crashes. Widespread violence; revolution
American Corporations Lose Billions, Demand Bailout From Washington
"It's to save free trade," say desperate CEOs.
Yes, china cooks its books on growth. They still follow the old Communist system where each Provincial Leader reports their Province’s growth for the year. Oddly, only 1 Province was below the national average last year....
Yes, China has a lot of credit growth, especially to state-run or favored industries for Gov’t “investment” and “infrastructure” problems.
Yes, a lot of this money is wasted on bad projects and corruption.
ON THE OTHER HAND
Private citizens have a very high savings rate. Consumer credit, except for housing, is tiny relative to the USA.
Buying a home in China requires a LARGE downpayment. Often, homes are also multi-generational, meaning more than the owner contributes to it.
China’s banks are state-owned and the Party is in control. They have all the money they need from the Gov’t if they may be bankrupt by conservative accounting standards
China does not allow hedge-funds and of course does not have a convertible currency. There is no one to spark a panic.
IN SUM - a sudden crisis in the economy will ONLY come if there is a sudden crisis in the Party.
When the crash comes there will be blood running in the streets.
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