Contrarian Investor Sees Economic Crash in China

[cbdo2007]

SHANGHAI — 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.

http://www.nytimes.com/2010/01/08/business/global/08chanos.html?em

[blue97keet]

1. Not surprising at all

[barb162]

2. I wonder if he bothered to take a look at what's in their Treasury n/t

[pa28]

3. If he's right this is a huge story.

Of course the idea of an across the board Chinese bubble flies in the face of some recent news like the recent http://www.ft.com/cms/s/0/bcd45022-f116-11de-bcfc-00144feab49a.html">upward revision of GDP numbers.

He's been talking about this for a little while now and he seems to think that non-performing loans and propaganda driven accounting fabrications will result in large scale failure. Worth considering as their banking rules allow for some padding on bad loans and maybe he's seeing a crunch on the horizon.

On the other side of the coin the Chinese have enjoyed success in their urbanization campaign; bringing millions at a time from the rural economy to the consumer economy and in the process replacing lost foreign consumers for Chinese production and soaking up excess production capacity. In effect paying for the bet they've made as a matter of policy.

I'm looking forward to his presentation later in the month. Should be interesting.

[clixtox]

4. China is too opaque to express more than educated hunches. Urbanization...

in China seems to be recognized now, a year and a half after this last gasp puff piece was published, as being somewhere between a myth and a boondoggle.

The two examples given, China and Dubai, are now well known to be unsustainable. It's a hoot to read the referenced article today.

The supposed domestic market for the crap China was manufacturing for export has reportedly not materialized yet.

Somewhere in China there have to be mountains of consumer goods already created just for markets that have drastically shrunk or disappeared.

Serious restructuring may well be in China's future soon, that is unlikely to be pleasant for anyone, especially the USA if our symbiotic relationship is sundered.

[pa28]

5. Chinese urbanization is well known to be unsustainable and a myth?

I disagree. I think it's a contrarian view and mostly the point of the OP.

Here are some http://english.peopledaily.com.cn/90001/90778/90862/6848826.html">current statistics showing their urbanization rate nearing 50% now which is several years ahead of the UN estimate. In 1990 that rate was around 20%.

Yes, there is some excess production capacity but it's evident their plan is to create a larger consumer class by urbanization and gradually replace lost demand overseas. Their recent decision to increase yields is part of the case that they are not living in an American style fantasy land, perfectly happy jumping from one bubble to the next.

But don't get me wrong. I'm interested in the subject and if you have some evidence for your claim I'd like to read it.

[westerebus]

6. Wi ki suicide rates.

Look at China's. Now the data is old, 1999, but useful. The suicide rate for females is higher than for males.

You can also go to the World Health Organization. You will find similar data. Including causes of death by sex and age group. Take a look at the difference in birth rates disparity between sexes. That data is newer. On second births in particular.

The question becomes not who moved to the cities, but who was left behind to take care of grand parents, elderly parents, and the household in general.

So we may infer the following, there are more males than females, more males are leaving the country side for employment in the cities, which reduces the pool of husbands available in the rural parts of the country; greater disparity in incomes between rural and city dweller's, and a higher rates of death by violence among urbanized dweller's as a consequence of over crowding, competition, and mental health/socialization problems found in male demographics found across most industrialized countries.

Now this is just my take. You would have to come to your own conclusions. Without trying to sound sexist, though I don't know how else to phrase this, who does the shopping?

[fasttense]

7. Due to the restrictions on number of children allowed per family and

a bias toward male children, China doesn't have enough women for their newly adult young males. "Li Weixiong, said that by 2020 there will be 40 million men who will not be able to marry for lack of a partner."

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=229x355

When healthy young men don't have a chance to settled down and raise a family it leads to serious unrest.

[clixtox]

8. More contrarian essays @ ...

http://www.nakedcapitalism.com/category/china

It will take more than a migration from the countryside to the metropolises for actual, "shovel ready" consumers with disposable income to materialize.

A lot more.

Interesting to note that the "statistics" you link to are directly from the Chinese government owned media and Chinese government controlled institutions. It really reads like wishful dreaming with a huge dollop of propaganda. The article does state that in percentage terms China's rural population is startlingly low. The time-line mentioned puts the solution occurring in, perhaps, forty years. That's when the economy will have enough true consumers in urban settings to sop up the goods being manufactured domestically, perhaps.

Not anytime soon though!

Over half of the population will still be in the rural provinces, even if the projections in the article turn out to be correct, next year, 2012.

Meanwhile the real estate market seems to be mimicking our bubble of recent years and Japan's real estate market bubble of the 1980s.

But who knows? Like I started my previous post on this thread, the reality is impossible to know from here in Vietnam, in China or even in the USA.

A known unknown...

[pa28]

10. China's urban growth predictions for this decade are not a matter of much debate.

The UN is in rough agreement with this information as of the last revision. Hopefully that is OK with you and you are not going to make me go over there and conduct my own census. (don't do that)

Seriously though, when you are moving millions at a time from subsistence farming and maybe another 2-3 yuan per day from the market to a city factory job you have an important demographic trend. Nobody, not even the Chinese government is saying they will be buying cars, watches, wine or become mature consumers the moment they step off the train.

I want both sides of this argument which is the reason I'm looking forward to Jim Chanos' presentation. Based on his past analysis he's likely identify some specific conditions and flaws that exist now. Considering he's currently short he must expect this disruption to come soon.

He might talk about inflated numbers but I doubt he'll try to sell his position based on opinion or say that the Chinese growth and production story is a propaganda fueled myth or fantasy. Naturally I think a presentation like this will be informative and worthwhile.

[OllieLotte]

9. This line pretty much sums it up:

"Colleagues acknowledge that Mr. Chanos began studying China’s economy in earnest only last summer and sent out e-mail messages seeking expert opinion."

So he admits he doesn't know much about China, sends out email messages to some people and now forms an opinion that China is a bubble? His successes were based upon the USA, where he is based.
I can't give this the type of weight that the author thinks that he deserves.