Chanos thinks Chinese property bubble very dangerous
Posted on 14 April 2010 with 3 comments from readers
Legendary short trader and hedge fund manager Jim Chanos has China in his sights these days and is astonished by the growing property bubble that he says is Dubai times a thousand.
The video clip gives a flavour of this interview. But Chanos also later remarked that construction and real estate accounts for 50-60 per cent of Chinese GDP, and so when this bubble bursts the implications for global commodity prices are profound, quite apart from the devastating impact it will have on China and its Asian neighbors.
The worrying thing is that Chanos has been right on Enron and US housing in the 2000s and has a reputation for spotting bubbles early and then profiting from them. And even more worrying is that he just has to be right on China eventually. He is not making this up!
3 Comments posted by readers:
The parallels between China and Dubai are just not there. It has to be remembered that China’s economy is not being built solely on real estate speculation and debt, as Dubai was doing, but on real manufacturing, exports and fast-growing internal consumption.
While there has been speculative activity in China – most recently on Hainan island – most of the construction taking place is to fulfill genuine demand rather than bizarre and unsustainable projects. A large proportion of cash is also involved rather than debt.
Before we see a home price correction in China we will see reduction in rents and and supply of vacant shops and homes out for rent which we have yet to see. Also before this happens we will start seeing new projects that are getting released not being sold out. We also will start seeing no lines for those projects.
The difference between what got sold in Dubai and what gets sold in China is that many of those which bought in Dubai were speculators hoping that they could get others to buy after at a higher price for a profit or someone to rent with good rental income and when there turned out to be no renters and no buyers the shit hit the fan. In China though most of those places of which are sold off-plan are usually either occupied by the buyers themselves or immediately by someone else.
For those posting that China is about to burst have not been to Guangzhou,Shanghai or Shenzhen recently. A trip to the city,Financial areas and wholesale areas will show otherwise. I would post pictures that I have taken if I could but am an unable to upload attachments here to show everyone how the economy there really is. Almost all the trains between Guangzhou/Shenzhen and Hong-Kong are nearly always packed full. I must admit that the economy there is booming and people are making good money there.
Ed Note: Remember the traffic jams in Dubai? And people were paying top dollar for property right until the sudden stop. Do you not think the Chinese are gambling on property, that is not what I hear? Read the new book ‘This Time is Different’, its conclusion is that it almost never is!
In response to Ed Note,
The traffic jams in Dubai were due to expats which were in Dubai based on hopes and others for investment purposes. The market in China is mainly based of locals and not expats which is unlike Dubai. Those living in China do not need to pay 28,000 Dhms. in community fees for the units that they buy and they also do not need to pay 4000 Dhms. in yearly visa/residency renewal fees. Along with that cost of living is less tha 20% of what it is in Dubai. They don’t have any where to go.
The advantage that they have in China is that they have a strong local base of local demand for everything which is unlike Dubai. I do think that one day down the road things will change in China but not quite just yet. I have spent plenty of time in the middle-east along with Dubai and plenty of time in China and speak both Chinese and Arabic quite fluently. Last but not least, the whole world relies on the manufacturers from China which is not the case for Dubai.
Ed Note: the Middle East relies on Dubai for imports! Forget anything else.