Jim Chanos On China's 'Edifice Complex'

Tyler Durden's picture

Since 2009, Jim Chanos has been warning of the real estate bubble in China and he is as concerned as ever given the new government's actions (and likely inactions). The presentation (from last week’s 2013 Wine Country Conference) below lays out his thesis in gruesome detail and is unreasonably factual. With capital gains tax impositons and curbs on real estate, he is still not optimistic that the new government will enact any of the major reforms that are required - and will be unable to without blowing it all. Simply put (as Yahoo notes): China is adding the equivalent of $2.5 trillion of new debt annually; 30% of China’s GDP growth depends on new credit creation - half outside of normal banking circles; China’s excessive credit creation is invested in the wrong sectors; and every new dollar of debt created is yielding less growth in GDP. "There are myriad ways... to be short the Chinese property bubble," he adds, noting that, "the new [government]... has no incentive to change the system."

From Yahoo,

Chanos's bearish stance on China extends to Chinese companies too.


"[China] has been a very bad place to keep your money… The Chinese economy has quadrupled in nominal terms in the last 10 years," he says. "Western investors in the Chinese stock market have basically made nothing in that 10-year period. That’s a staggering indictment of the form of capitalism that exists in China.”


This is China Today:



Full Presentation below:

Chanos Wine Country Conference by zerohedge

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Croesus's picture

They have Gold......they can't be so bad in my book.

Precious's picture

New ghost-town cities.  100% vacant malls.  Roads going nowhere.  

Exactly how does this communist central planning work again?

q99x2's picture

These cities are to be inhabited after the fast approaching global war.

Matt's picture

When the mortgage holders (half the population) cannot afford to service their debts, the government can take the empty apartments along with wiping out the debts, and then provide those houses to the half of the population that are really poor. 

They must wait until the "wealthy" half of the population is begging for relief from their debts, otherwise people will be upset about their investment properties being stolen from them. When the time is right, they will be begging for debt relief.

This could turn out to be a real win-win for the Party, if they can be the saviors of the wealthy people, and providers for the poor people, at the same time.

YuShun's picture

Chanos contends that China is overbuilt, but says:
 “2012 Total Real Estate per capita: 14.9 sqm”.
That’s about 160 square feet.  That’s too much? 


TPTB_r_TBTF's picture

That is "too much" for someone who cannot afford it.

Go Tribe's picture

Same way it works in America, but with plenty of gold and reserves.

New_Meat's picture

Croesus, as king, you do appreciate that "they" have Au in large quantities.  However, the Chin (and, etc.) have other opinions of Kings, Emperors, and others appearing to rule "they".

'tain't a monolith, the middle kingdom.  Perhaps the (local to me) current acquisition of billions and billions of items of assemblies of precision machined and precision chemical materials is going to be an "investment" in the snowflake sense--long term investment for a future need that can be swapped for said Au.

Guess we'll see in the fullness of time.

- Ned

Croesus's picture

@ New_Meat


A king is but a man. The West does not understand the culture of the East. Ultimately it means war in the future.

RideTheWalrus's picture

They have gold, they already eat bugs, they have a factory to make any patent on the planet and a population that has been broken and rebuilt by statism before.
They are way ahead of the curve. 

LawsofPhysics's picture

Rip-off artists lacking innovation, for now...

JustObserving's picture

"the new [government]... has no incentive to change the system."

China had $1.3 trillion in real estate under construction in 2012 (Jim Chanos' figures).  Far more terrifying is the US entitlement complex unfunded debt of $123.67 trillion and increasing at $6.9 trillion a year.  But the DHS will put you on their terrorist list, if you mention that.

No politician dare change the entitlement system even as it bankrupts America.

reader2010's picture

he's got burnt by having shorted the motherfucker for so looooooooooooong.

Mythic's picture

He has been long SPY and MDY for most of this bull run and he bought a massive UNG position just before a 30% rally. 

He has publicly stated that he would bet on the US economy over China's.  Since the bear market bottom the S&P is up 130% and China's markets are up 35%. 

reader2010's picture

but that doesn't change the fact he's got bled there, does it?

dracos_ghost's picture

How did he get bled? It's a hedge position. Sold an asset that cost him 35% carry to buy an asset that generated 130% and that's assuming a symmetric position ( which he said is not the case and he is heavier on the long side). People need to listen to his full statements instead of just the sound bites of gloom and doom. Lauren Lyster interviewed him a couple of weeks ago and he kept saying, "You need to remember, our short fund represents only around 10% of our total book and we fully hedge our short positions with offsetting longs in our other funds."

reader2010's picture

that math sounds like those generals who argued they have won the war in iraq because of their straddle in the region. 

Non Passaran's picture

Reader you clearly don't have a clue, why don't you go comment on the Boston thing where even the wildest speculations aren't considered silly and outrageous

francis_sawyer's picture

Chanos... Right & EARLY... Ooops...

_ConanTheLibertarian_'s picture

which is often the case. Sooner of later he will be vindicated.

Kayman's picture

I am not here to defend Chanos, but if he shorted Copper, he made a killing.

Poqit's picture

Unreasonably factual?

New_Meat's picture

was gonna' mention that too, thanks.

What factual situation can't be discussed in reasonable circumstances?

- Ned

Atomizer's picture


Just figure out the next MSM cowering to branch Globalization terrorism. The Cabal is painted into the corner.. 1,000 public servants who closed down Boston, MA will become aid in closing down Wall street and DC.

The sponsored traitors reside in the House, Senate and Congress. They’re working for international operative expansion goals, not our US Constitution. Using the latest Boston bombing script will be influential by efforts in rounding up the international bankers political water boys who think they’re above the law.. Your home grown terrorist network operates out of Washington DC.. Fact, not a joke!

Notarocketscientist's picture

You know you are crazy - and that you should stay away from sharp objects and fire arms.

syntaxterror's picture

Poor Chanos. Invested millions trying to successfully short this farce. Reduced to pining for acceptance in the wine country.

Non Passaran's picture

Look up China stock market indexes...

ebworthen's picture

Sounds like the U.S. and China are on the same path.

Miss-allocation of capital benefiting bankers and punishing savers.

Is it any wonder that citizens of both countries are buying Gold and Silver hand over fist?

Dr. Engali's picture

Sky City One .. The world's largest skyscraper to be built in 90 days. So in other words we have 91 days from the start of that project to the collapse of the Chinese markets.

debtor of last resort's picture

7 billion people & infinite growth. Yeah, right.

jonjon831983's picture

Hmmm local coin shop originally said last week to expect delivery end of may.  They just called and said I can get it in a couple days.  Sweet, but not sure what it means in terms of coin supply if they can get it a month ahead of quoted.  Interesting.

MFLTucson's picture

Hmmm, we have an American know it all telling a country with 3 Trillion in excess foreign reserves how to make money?  Haha

hooligan2009's picture

don't be smart, heh..and don't forget China is using Treasuries as an accounting device ..it has no way to employ the fiat money in its domestic economy...maybe if China bought AAPL, IBM and Google for now and XOM, C and BAC later..

ponders whether in the spirit of every action has an equal and opposite reaction..the US debt owned by the Chinese is a result of impoverishing its people for decades via a trade surplus (price of goods represents oppression of populace)...

Jim in MN's picture

I really wish that China would have a proper democratic, possibly even Christian/Presbyterian (ask King George about that), revolution soon.  Like this week.  Just to fuck up the plans and models of all the Western assholes who blithely assume that the Chinese tyrants can control their population into a willful chattel of credit card-wielding zombie consumers indefinitely.

Fuck them.  And Bernanke.  AND the commies.

New_Meat's picture

u can look up the nation that prints the most number of Christian Bibles.

Son of Loki's picture

I was at one of their new giant parks last Fall....empty. It was eerie....no one aournd. The good news is that I was not mugged in this empty park, as opposed to the USA, where I would not have made it 50 feet into a deserted park wihtout being mugged, maimed and/or stabbed to death.


Despite what's happening in their financial system and on their polluton front, their street crime is near zero. the other "funny thing" there is when you meet someone they will wihtin a few minutes get around to the asking you, "What's your house worth?"..and then go on to brag that theirs has risen 300--400% in price in the last 6 years.



Mentaliusanything's picture

300-400% increase in price in th last 6 years........its a bit like owning Apple stock!

Its eventually going to make you poor because it earns you less on the way up ( opportunity cost) and when no one can afford it at its peak, if your geared at all will send you broke on the way down.

Bam_Man's picture

In my experience, anyone with eyeglass lenses as thick as the ones Chanos has (Coke bottle-like) is EXTREMELY smart and usually right.

q99x2's picture

There goes my homework time.

I'll be tail dragging into class again this week.

Bloody Chiclitz's picture

He's been making money on his China positions since 2008. The only thing that has changed is his willingness to share his research.

WhiteNight123129's picture

Copper and steel financing is a practice very very old in China.



It is the process of secured inventories. It is called the ~Go down~ financing.

In his Book from 1942, Frank Tamagna explains how in China Bank would have warehouse where they could take the security against inventories.The merchandises would ~go down~ in the warehouse.

So this commodity collateral financing has always existed in China. Jim is great but he needs a bit of background on China, on native banks history, on the modern banks, on the origin of the 4 banks, Bank of China, Bank of China, Bank of Communications and Agricultural Bank of China which played the role of central bank in the 1930s.

Of course the new Gov has an incentive to change the system.

In China it is the Gov who runs companies. The end purpose of the Chinese communist party is to stay in power, at whatever cost, even if that involves sacrificing a few State Owned Companies.

In the US the corporations control the government. The end purpose is to amass more and more dollars, at whatever cost, even if that involves sacrificing a few Governments or presidents and the currency.


GDP is man made. Of course, always!! Now check the amoutn of US spending as % of GDP....

That being said there is a property bubble, and so far, they are not trying to inflate it away, no tigthening no easing so far. There will be some bankruptcies, but it is a good thing. The US needed a lot more bankruptcies in 2008 instead of trying to inflate away teh debts.



Non Passaran's picture

None of that changes the fact that China bubble is bigger than ever.
I don't think real estate is their biggest problem, I think it's "investments" in infrastructure that can't return a profit but can bankrupt local governments...

Kayman's picture

"In the US the corporations control the government. The end purpose is to amass more and more dollars, at whatever cost, even if that involves sacrificing a few Governments or presidents and the currency"

You forgot to mention-or the country.

U4 eee aaa's picture

Last I heard they were saving 25 cents of every dollar or some ridiculous number like that. Are they still doing that?