Noted China Bear at it Again

Jim Chanos, a U.S.-based hedge fund manager well-known for his negative outlook for China, told a television audience on Friday that China’s economy is about to enter a period of significant contraction. Chanos has long held the belief that the event to trigger the collapse will be a sharp decline in property values.

At his most animated, Chanos describes China’s situation as a thousand times worse than the property collapse that struck Dubai in 2009. Chanos maintains that China’s growth has been achieved on the coat-tails of a rapidly expanding property bubble that is now showing real signs of bursting. As evidence, Chanos points to a nationwide survey of home prices for September. The survey indicates that home prices rose in fewer than half of the 70 cities included in the report.

It is necessary to note, however, that the Chinese government has deliberately attempted to ease the rate of property value appreciation. To date, this has been managed through efforts to quell property speculation. New rules have been implemented to make it more difficult to borrow money to buy a second property while credit has been frozen in the banking system by raising the minimum reserve requirements that commercial banks must maintain.

Understandably, not all analysts are in agreement with Chanos. Stephen Roach of Morgan Stanley Asia noted recently that the pullback in property values is due to government efforts to cool property value increases. This simply confirms that these efforts are working says Roach who believes fears that China is headed for a hard landing are “overblown”.

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