Hedge fund manager Jim Chanos first started warning about a Chinese real estate bubble in 2009. More money managers and analysts have since joined Chanos' team but the bubble has yet to burst. Still, it's clearly on the minds of the Chinese.
The Beijing and Shanghai governments recently imposed a 20% capital gains tax on residential real estate as well as other restrictions on the market in order to curb speculation in the housing market.
Chanos's bearish stance on China extends to Chinese companies too.
"[China] has been a very bad place to keep your money…The Chinese economy has quadrupled in nominal terms in the last 10 years," he says. "Western investors in the Chinese stock market have basically made nothing in that 10-year period. That’s a staggering indictment of the form of capitalism that exists in China.”
And if the bubble bursts Western investors stand to lose whatever investment they might have made.
- China is adding the equivalent of $2.5 trillion of new debt annually
- 30% of China’s GDP growth depends on new credit creation—half outside of normal banking circles
- China’s excessive credit creation is invested in the wrong sectors
- Every new dollar of debt created is yielding less growth in GDP
Chanos is short Chinese stocks that trade in the Hong Kong market. He’s short stocks in China’s construction market which include construction companies, real estate developers, steel, iron ore and cement makers, mining companies and Chinese banks.
“There are myriad ways… to be short the Chinese property bubble," says Chanos.
China recently installed a new government which has led some investors and observers to expect reforms that will reduce the excesses in the Chinese economy. Chanos is not that optimistic.
“I’m convinced the new guys in the room are in on it and are benefitting from it and ….[have] no incentive to change the system," he argues.
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