Jim Chanos is Still Bearish on China

By on September 27, 2011

Jim Chanos - Kynikos AssociatesJim Chanos, founder of hedge fund Kynikos Associates, was interviewed on Bloomberg TV last week and was very negative on the prospects for China. Chanos was also bearish on China nearly two years ago (link).

In this latest interview Chanos said the Chinese government balance sheet directly does not have a lot of debt, which he referred to as “de minimis.” He claimed Chinese state owned enterprises, the local governments, and all the other ancillary borrowing vehicles have lots of debt, and it’s growing at an extremely fast rate.

Chanos said there is an assumption the state will stand behind the massive debts. Chanos indicated that he and others (including Fitch), have determined that debt in China, implicitly backed by the Chinese government, probably has gone up from somewhere around 100% of GDP to about 200% of GDP recently. He considers those numbers staggering. Chanos stated, “those are European kind of numbers, if not worse.”

When asked about the common perception of Chinese fiscal strength Chanos elaborated, “I think that’s going to be the surprise going into the end of this year and into 2012 that it’s not so strong. As I said, the property market is hitting the wall right now, and things are decelerating. The CEO of Komatsu said just last week that he’s having trouble getting paid for his excavator sales in China. So developers are being squeezed, they’re turning to the black market for lending, this sort of shadow banking system which is now growing by leaps and bounds, like everything in China sort of starts with nothing and becomes huge within a year or two; and regulators over there are really trying to get their hands around the problem. Meanwhile, the local governments have every incentive to just keep the game going. So they are just continuing with projects, continuing to borrow, as the central government tries to reign them in.”

Chanos commented on what he was particularly negative on, “we are short Chinese banks, the property developers, commodity companies that sell into China; anything related to property there is still a short.”

2 Comments

  1. Canoli Eater

    September 27, 2011 at 10:39 pm

    If China goes down like Chanos predicts it will bring down the world’s economies! Faber says China’s got the biggest economic output in the world. Take that bulls!

  2. Wall Street Sucks

    October 3, 2011 at 12:15 am

    Hong Kong is down big time tonight. Looks like Chanos may be right finally.

    As an aside, Jamie Dimon is paying protection money to the NYPD. The “Occupy Wall Street” protestors must be making him nervous.

    http://ology.com/politics/jpmorgan-chase-donates-46-million-nypd-during-ows-protests

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