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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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Sat, 04/20/2013 - 16:55 | Link to Comment Croesus
Croesus's picture

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

Sat, 04/20/2013 - 17:09 | Link to Comment Precious
Precious's picture

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

Exactly how does this communist central planning work again?

Sat, 04/20/2013 - 19:55 | Link to Comment q99x2
q99x2's picture

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

Sat, 04/20/2013 - 20:57 | Link to Comment Matt
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.

Sat, 04/20/2013 - 23:09 | Link to Comment YuShun
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? 

 

Sun, 04/21/2013 - 03:37 | Link to Comment TPTB_r_TBTF
TPTB_r_TBTF's picture

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

Sun, 04/21/2013 - 10:52 | Link to Comment Go Tribe
Go Tribe's picture

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

Sat, 04/20/2013 - 18:07 | Link to Comment New_Meat
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

Sat, 04/20/2013 - 19:19 | Link to Comment Croesus
Croesus's picture

@ New_Meat

Ned:

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

Sat, 04/20/2013 - 23:35 | Link to Comment RideTheWalrus
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. 

Sun, 04/21/2013 - 16:02 | Link to Comment LawsofPhysics
LawsofPhysics's picture

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

Sat, 04/20/2013 - 17:10 | Link to Comment JustObserving
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.

Sat, 04/20/2013 - 17:17 | Link to Comment de3de8
de3de8's picture

As?

Sat, 04/20/2013 - 17:00 | Link to Comment reader2010
reader2010's picture

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

Sat, 04/20/2013 - 17:11 | Link to Comment Mythic
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%. 

Sat, 04/20/2013 - 17:50 | Link to Comment reader2010
reader2010's picture

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

Sat, 04/20/2013 - 18:59 | Link to Comment dracos_ghost
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."

Sat, 04/20/2013 - 20:11 | Link to Comment reader2010
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. 

Sat, 04/20/2013 - 22:43 | Link to Comment Non Passaran
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

Sat, 04/20/2013 - 17:09 | Link to Comment francis_sawyer
francis_sawyer's picture

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

Sun, 04/21/2013 - 09:40 | Link to Comment _ConanTheLibert...
_ConanTheLibertarian_'s picture

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

Sun, 04/21/2013 - 11:49 | Link to Comment Kayman
Kayman's picture

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

Sat, 04/20/2013 - 17:11 | Link to Comment Poqit
Poqit's picture

Unreasonably factual?

Sat, 04/20/2013 - 18:10 | Link to Comment New_Meat
New_Meat's picture

was gonna' mention that too, thanks.

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

- Ned

Sat, 04/20/2013 - 17:13 | Link to Comment noob
noob's picture

Alka-Seltzer TV Commercial

https://www.youtube.com/watch?v=bxjb2UJZ-5I

Sat, 04/20/2013 - 17:15 | Link to Comment Atomizer
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!

Sat, 04/20/2013 - 19:35 | Link to Comment Notarocketscientist
Notarocketscientist's picture

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

Sat, 04/20/2013 - 17:21 | Link to Comment syntaxterror
syntaxterror's picture

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

Sat, 04/20/2013 - 22:40 | Link to Comment Non Passaran
Non Passaran's picture

Look up China stock market indexes...

Sat, 04/20/2013 - 17:24 | Link to Comment ebworthen
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?

Sat, 04/20/2013 - 17:30 | Link to Comment Dr. Engali
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.

Sat, 04/20/2013 - 17:31 | Link to Comment debtor of last ...
debtor of last resort's picture

7 billion people & infinite growth. Yeah, right.

Sat, 04/20/2013 - 17:37 | Link to Comment jonjon831983
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.

Sat, 04/20/2013 - 18:00 | Link to Comment seek
seek's picture

Gold eagles or what?

Sat, 04/20/2013 - 17:46 | Link to Comment MFLTucson
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

Sat, 04/20/2013 - 18:18 | Link to Comment hooligan2009
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)...

Sat, 04/20/2013 - 18:02 | Link to Comment Jim in MN
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.

Sat, 04/20/2013 - 18:24 | Link to Comment New_Meat
New_Meat's picture

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

Sat, 04/20/2013 - 22:36 | Link to Comment Non Passaran
Non Passaran's picture

Saudi Arabia?

Sun, 04/21/2013 - 00:51 | Link to Comment css1971
css1971's picture

The Bible (Made in China)

Sat, 04/20/2013 - 18:38 | Link to Comment Son of Loki
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.

 

 

Sat, 04/20/2013 - 18:57 | Link to Comment Mentaliusanything
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.

Sat, 04/20/2013 - 19:43 | Link to Comment Bam_Man
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.

Sat, 04/20/2013 - 21:01 | Link to Comment Matt
Sat, 04/20/2013 - 19:21 | Link to Comment q99x2
q99x2's picture

There goes my homework time.

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

Sat, 04/20/2013 - 19:42 | Link to Comment Bloody Chiclitz
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.

Sat, 04/20/2013 - 21:11 | Link to Comment WhiteNight123129
WhiteNight123129's picture

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

 

IT IS CALLED THE GO-DOWN, IF HE IS SURPRISED BY THAT IT IS BECAUSE HE DOES NOT KNOW HISTORY.

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.

LAST TIME A PRESIDENT IN TEH US WANTED TO CRACK DOWN ON CORRUPTION, HE GOT KILLED (KENNEDY).

 

Sat, 04/20/2013 - 22:35 | Link to Comment Non Passaran
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...

Sun, 04/21/2013 - 11:57 | Link to Comment Kayman
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.

Sat, 04/20/2013 - 19:53 | Link to Comment U4 eee aaa
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?

Sun, 04/21/2013 - 00:36 | Link to Comment css1971
css1971's picture

What do they do when they save? They deposit the money in the bank. And what does a bank do with deposits? It lends them tp people to spend, or at least uses them as reserve to increase lending.

There's some sort of Keyensian economic myth that savings go into physical paper and get stuffed in a matress.

Sat, 04/20/2013 - 22:15 | Link to Comment meizu
meizu's picture

Regarding the low stock-return

"Based on decades of data from 53 countries, Prof. Dimson has found that the economies with the highest growth produce the lowest stock returns -- by an immense margin. Stocks in countries with the highest economic growth have earned an annual average return of 6%; those in the slowest-growing nations have gained an average of 12% annually."

 

http://online.wsj.com/article/SB124846985120879989.html

Sat, 04/20/2013 - 22:28 | Link to Comment meizu
meizu's picture

Regarding the low stock-return

"Based on decades of data from 53 countries, Prof. Dimson has found that the economies with the highest growth produce the lowest stock returns -- by an immense margin. Stocks in countries with the highest economic growth have earned an annual average return of 6%; those in the slowest-growing nations have gained an average of 12% annually."

 

http://online.wsj.com/article/SB124846985120879989.html

Sun, 04/21/2013 - 00:43 | Link to Comment e-recep
e-recep's picture

it is not easy to fight the bubbles, some even say 'impossible'. world's fiat currencies are not backed by gold, they can be created out of thin air at will and their creators are printing like mad men. i read a few weeks ago that singapore was trying to fight its property bubble but i am not sure it will be successful.

this is uncharted territory. as long as this crazy printing continues governments can do very little but watch. on the other hand china did the right thing by pulling world's factories to itself and by hoarding gold. the future looks bright for them...assuming peace prevails.

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