Now, the Chinese bubble is set to burst
By David Barboza, The New York Times 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 Chanos, a wealthy hedge fund investor, is working to bust the myth of the biggest conglomerate of all: the China Inc. The construction boom in China reflects overheating of the economy. AFPAs most of the world bets on China to help lift the global economy out of recession, Chanos is warning that China’s hyperstimulated economy is headed for a crash, rather than the sustained boom that most economists predict, David Barboza of The New York Times reports from Shanghai. China’s surging real estate sector, buoyed by a flood of speculative capital, looks like “Dubai times 1,000 —– or worse,” Chanos frets. He even suspects that Beijing is cooking its books, faking, among other things, its eye-popping growth rates of more than 8 per cent. “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 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 —– 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 US$586 billion government stimulus programme 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, Chanos has said he is searching for other ways to make his bets, including focusing on construction- and infrastructure-related companies that sell concrete, coal, steel and iron ore. … In recent months, a growing number of analysts, and some Chinese officials, have also warned of the threat of asset bubbles emerging in China. The nation’s huge stimulus programme and record bank lending, estimated to have doubled last year from 2008, pumped billions of dollars into the economy, reigniting growth. But many analysts now say that money, along with huge foreign inflows of “speculative capital,” has been funneled into the stock and real estate markets. A result, they say, has been soaring prices and a resumption of the building boom that was under way in early 2008 —– one that Chanos and others have called wasteful and overdone. “It’s going to be a bust,” said Gordon G Chang, whose book The Coming Collapse of China (Random House) warned in 2001 of such a crash. …
