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Contrarian Investor Sees Economic Crash in China

Joined
4/5/08
Messages
267
Points
38
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 Mr. Chanos, a wealthy hedge fund investor, is working to bust the myth of the biggest conglomerate of all: China Inc.
As most of the world bets on China to help lift the global economy out of recession, Mr. Chanos is warning that China's hyperstimulated economy is headed for a crash, rather than the sustained boom that most economists predict. Its surging real estate sector, buoyed by a flood of speculative capital, looks like "Dubai times 1,000 -- or worse," he frets. He even suspects that Beijing is cooking its books, faking, among other things, its eye-popping growth rates of more than 8 percent.


contrarian-investor-sees-economic-crash-in-china: Personal Finance News from Yahoo! Finance
 
I so hope he's right. All of this talk of China ruling the world because of its booming economy yadda yadda--it makes my head hurt, and it just makes me want to see all of those people proven dead wrong.
 
I so hope he's right. All of this talk of China ruling the world because of its booming economy yadda yadda--it makes my head hurt, and it just makes me want to see all of those people proven dead wrong.

It's actually not a good thing because China's economy is tied to the US's. So if China goes down, the US is pretty screwed as well.
 
It's actually not a good thing because China's economy is tied to the US's. So if China goes down, the US is pretty screwed as well.

The economies are really tied but it's the other way around, if the US economy goes south, China's is probably going to hurt a lot too.
 
Well if China goes down, it might not be too bad a thing for US considering all the treasury notes and dollar it is holding, which some consider are under threat of being unloaded. If things go bad for China, it will have to hold on to those assets even if they loose all their value in the hopes of getting paid one day.
 
I have a similar opinion with Alain. Let's assume China stops every commercial/financial business tomorrow.

If U.S. relies on China for mass manufacturing, then it can be done by many other countries. Initially it will be tough since a large gap opens up. However, I think it will be filled by other countries eager to fill consumer demand (e.g. Thailand, Korea, India etc).

If U.S. relies on China for credit (buying treasuries) then it can find other buyers. China covers 23% of public U.S. debt, I find it amusing when people keep saying China is the only creditor for U.S., for instance Japan has 21%.

I don't think U.S. depends only on Chinese market (about 10% of the exports)

If China would have major economical problems, I am sure that it will lead to another recession dip in the U.S. Markets are correlated.
However if U.S. would suffer a major crash, I am sure China would hurt much more.
 
If U.S. relies on China for mass manufacturing, then it can be done by many other countries. Initially it will be tough since a large gap opens up. However, I think it will be filled by other countries eager to fill consumer demand (e.g. Thailand, Korea, India etc).

Agreed, as there is global overcapacity. Prices will go up, though, as China has the cheapest manufacturing.

If U.S. relies on China for credit (buying treasuries) then it can find other buyers. China covers 23% of public U.S. debt, I find it amusing when people keep saying China is the only creditor for U.S., for instance Japan has 21%.

Japan is a US vassal and has no choice. It is uncertain whether the US will find anyone besides China willing to accept US paper for tangible goods -- not hundreds of billions of dollars worth, I think.

If China would have major economical problems, I am sure that it will lead to another recession dip in the U.S. Markets are correlated. However if U.S. would suffer a major crash, I am sure China would hurt much more.

China is trying to reduce its exposure to the US. It makes little sense to keep accepting US paper for tangible goods. There is no sense of direction among US policymakers and there is a suspicion they will resort to inflating their way out of trouble. That is the course of action I would take if I were a policymaker. This makes US paper of dubious worth. The US economy is going to remain in trouble, at least long-term stagnation. Other areas of the world will continue to develop at faster rates -- India, China, South America.
 
China is trying to reduce its exposure to the US. It makes little sense to keep accepting US paper for tangible goods. There is no sense of direction among US policymakers and there is a suspicion they will resort to inflating their way out of trouble. That is the course of action I would take if I were a policymaker. This makes US paper of dubious worth. The US economy is going to remain in trouble, at least long-term stagnation. Other areas of the world will continue to develop at faster rates -- India, China, South America.

I agree that the balance may change in 15-20 years. I was just making some "blunt" general statements for this moment in time. Of course if U.S. reaches 100% debt from GDP out of which 50% is covered by China, then it is a whole different game.
Other than that, I share some of Chanos "suspicion" around some of the numbers provided by Chinese government. I wouldn't gamble money on this, but I wouldn't be surprised to have some bad news here.
 
Nothings gonna happen to china. They will eventually become a superpower. Mr. Chanos' articles looks more like a hope trade.
 
I definitely think China is a bubble.

Whether or not the bubble will burst... that's a different story. China does have massive growth potential, so it's conceivable that even if Chanos is right at the moment, the market will never reflect his view.
 
In order for the bubble to burst in China, three things have to happen:
1. Infrastructure development has to be completed,
AND
2. Demographics have to be similar to USA and Western European countries with 22% of the population over age 65 and living off the government.
AND
3. China has to adopt a social security and medicare system similar to what exists in USA and Western European countries where the government will pay $500 K for a 75-year old person to undergo heart surgery or cancer treatment.

Condition 1 will probably exist by 2025.
Condition 2 will probably exist by 2030.
Condition 3 will never exist under a communist government. It can only exist under a democratic government.

China will be the world's largest economy by 2020. There is really nothing that can prevent that from happening.
 
the fact that China is a bubble is well known....the problem is when is it going to burst?

Is China's growth rate sustainable?

Historically, countries with tremendously high growth rate experienced sharp retracements. China is growing because the work-labour is cheap.end of the story. they can produce goods for a ridiculous price and sell them getting a good profit without having to spend or invest money to udpdate technology or machinery.

China is already extremely powerful and a large stake of the US debt is owned by chinese but I doubt that such a growth could be sustained in presence of human rights and labour law.

Furthermore, every underdeveloped country expands at a very high pace because it copies the know-how and technology and replicate it but once that country reaches its competitors' level the growth decreases because since then the expansion will depend upon researches and new discoveries and not on a "copy and past" type of business anymore

www.hypervolatility.com
 
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