Above is another interesting interview aired last night on CNBC with Jim Chanos, founder and president of New York investment company Kynikos Associates, explaining why he believes investors are “misled by Chinese GDP numbers”, the “end of the commodity supercycle”, and how “China is a great place to be short”.
Chanos is one of the original China bears, having first warned of China’s growing housing bubble in 2009, and in early 2010 famously described China’s fixed asset malinvestment and manufactured growth as “a treadmill to hell”.
Below are some exerpts from Chanos in the interview:
“China’s been a great place to be short. First of all, the markets have done nothing but go up globally in four years with one exception basically, China. And the credit cycle that we saw, which we thought would happen first in real estate has not happened. Real estate actually has held up, which is the interesting thing about China. I think it’s actually the next shoe to drop. But the credit cycle just got worse and worse and I think that has worked its way through commodities globally. I think we’re seeing arguably the end of the commodity super cycle. So all those things have played out in the last three years, but interestingly the Chinese are still buying condo apartments like crazy…
I still think the credit bubble issed world class. I think people are misled by Chinese GDP numbers. It’s a very managed number as you know. Meanwhile corporate profitability has gone through the floor. Credit problems have begun to multiply. The shadow banking system which we talked about in 2010 has finally come to the fore. So again, if you had to be short anything in the last three years, the one place to be short was China…
The problem is that the people that can afford the real estate are not the people moving to the cities. Real estate is very, very expensive there relative to income levels. And they keep them empty. And in the last data we saw, investment increased as a percent of GDP and consumption dropped. So the rebalancing isn’t happening. Part of the problem is that investment also leads to employment. A lot of these people are employed in constructing things. It will ultimately employ fewer and fewer people or pay them less. Is china really trying to put the brakes on? I don’t know if they know what they’re doing. It’s a complex economy. It is not totally subject to pushing buttons and pulling levers as I think everybody thinks it is. It is an $8 trillion US economy. It’s half our size. And then it is subject to all kinds of things like the shadow banking system that they really didn’t have their hands around until this year and a lot of balls are in the air, any one of which could fall.”
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