Jim Chanos Debunks The Myth Of China As The World's "White Knight"
One of the recurring themes on Zero Hedge in the past several months has been the continued mockery of the seemingly global conventional idiocy that China can bail out the world, when it itself is on the verge of a huge credit bubble popping and requiring the rescue of China itself by the rest of the global pyramid scheme (which however will be far too busy monetizing its own debt by then). Why, we vividly recall this quote from July 4, "So let's get this straight: a country which has 10% of its GDP in the form of bad debt, is somehow expected to be credible enough to buy not only Greek debt, but the EURUSD each and every day? Mmmmk. In the meantime, Dagong downgrades the US to junk status in 5, 4, 3..." Well, Dagong did since downgrade the US (as did S&P), although not to junk just yet, and somehow the world still continues to labor under the illusion that China (whose shadow banking system we also covered most recently here), is somehow healthy because it is far better than Europe (and the US) in hiding the true severity of its problems. Naturally, as long as that persists, the global ponzi will always have the benefit of pulling out a "white knight" whenever needed, regardless of just how ludicrous such an presumption has become. Today, famous China bear Jim Chanos appeared on Bloomberg TV and recapped his thesis which summarizes the bulk of these points, further extrapolating based on the Andy Lees analysis posted yesterday which estimates what a true economic growth rate is when one factors for bad debt and loss severities. His conclusion: "If we assume that China will grow total credit this year between 30% to 40% of GDP, and half of that debt will go bad, that is 15% to 20%. Say the recoveries on that are 50%. That means that China, on an after write off basis, may not be growing at all. It may be having to simply write off some of this stuff in the future so its 9% growth may be zero." And this stagnant, overlevered behemoth is somehow supposed to be... the world's white knight?
Highlights:
On the Chinese government's balance sheet:
"The Chinese government's balance sheet directly does not have a lot of debt. The state-owned enterprises of the local governments and all the other ancillary borrowing vehicles have lots of debt and its growing at a very fast rate. The assumption is that the state stands behind all this debt. We see that the debt in China, implicitly backed by the Chinese government, probably has gone from about 100% of GDP to about 200% of GDP recently. Those are numbers that are staggering. Those are European kind of numbers if not worse."
On how a Chinese property bubble will play out:
"I think that will be the surprise going into this year, and into 2012 - that it is not so strong. The property market is hitting the wall right now and things are decelerating. The CEO of Komatsu said last week that he is having trouble getting paid for his excavator sales in China. Developers are being squeezed. They're turning to the black market for lending, this shadow banking system that is growing by leaps and bounds like everything in China.
"Regulators over there are really trying to get their hands around the problem. In the meantime, local governments have every incentive to just keep the game going. So they will continue with these projects, continuing to borrow as the central government tries to rein it in."
Chanos on his long and short positions:
"We are short Chinese banks, the property developers, commodity companies that sell into China, anything related to property there is still a short."
"We are long the Macau casinos. It's our long corruption, short property play. We feel that there's American management and American accounting. They are growing at a faster rate even than the property developers."
On the IMF lowering growth estimates for China:
"A lot of people are assuming that half of all new loans in China are going to go bad. In fact, the Chinese government even said that last year relating to the local governments. If we assume that China will grow total credit this year between 30% to 40% of GDP, and half of that debt will go bad, that is 15% to 20%. Say the recoveries on that are 50%. That means that China, on an after write off basis, may not be growing at all. It may be having to simply write off some of this stuff in the future so its 9% growth may be zero."
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China has a property bubble. It is also the world's greatest industrial behemoth, controlling the world's supply chains in many key components, and is becoming an increasingly powerful player in energy markets thanks to its buy-out of Venezuela and its close ties to authoritarian Eurasian energy powers like Russia, Iran and Pakistan
The United States destroyed its industrial productive capacity, has a zombified financial system (including a huge derivatives ponzi that is yet to come down), stagnating labour market, stagnating infrastructure, a moronic Keynesian academia and government, and its currency is about to lose global reserve currency status. I suppose one thing we could be bullish about with the US is that they have the highest declared global gold reserves of any sovereign (still, gold would have to be at $11,000 an ounce to back all the dollars they've printed) — but we all know there's something fishy (i.e. tungsteny) about that.
China has a cold. U.S. has congential haemerrhoids, restless legs syndrome, diabetes, and its child has autism.
When are you going to publish something more balanced on China, Tyler?
TPTB in the US know exactly what is going on, and what they are doing. They will keep playing the status quo game as long as they can, and once the music stops, the will just change and do whatever they want next.
China will get obliterated far worse than the US as a government/military/financial hegemony.
The US people, and lots of US companies, like China, will get crushed.
But dont think for a second the US isnt fully aware of everything that is going on, and whats coming. They can and will end all free trade, not pay debt, devalue the dollar, create a new dollar, put interest rates to the moon, WHATEVER suits their interests best to keep the financial hegemony going.
They will squeeze every last drop from the current system first, and then change to anything they want.
"They can and will end all free trade, not pay debt, devalue the dollar, create a new dollar, put interest rates to the moon, WHATEVER suits their interests best to keep the financial hegemony going."
No doubt, they can do all of that. That won't rebuild the American economy, though. It'll just alienate America from a world which America is increasingly dependent on. Every day, America becomes more dependent on foreign oil and resources. The argument I often hear is "yeah, but America has nukes, we can order other countries to do things and they will do it". But ever since mutually-assured destruction that hasn't been true. America needs the global resource and trade infrastructure. That's why we're in Iraq, Afghanistan, Yemen, Pakistan. That's why there are hundreds of bases around the world and why America spends trillions policing the world.
If you don't control your supply chains, you have a geostrategic problem, period. China grasped the importance of supply chains, and has made itself the spider at the centre of the web of global trade. America grasped they could get a free lunch with US treasuries and that free lunch destroyed their productive capacity.
China has put itself in the position that it cannot upset the apple cart as far as supply chain goes. It is just that they think they can "cheat" on their balance sheet and never have to pay the piper. I think they are wrong. I am firmly in Chanos camp on this.
I'm with Jim Rogers.
http://www.businessinsider.com/uh-oh-now-jim-rogers-is-warning-about-the-chinese-property-bubble-2010-1
Every day, America becomes more dependent on foreign oil and resources
BS. America imports less than half of our oil, and the %age of imported oil goes down every day. Except for oil, we import almost no resources. We may be fucked up in other ways, but we are resource rich, something China longs to be.
From a highly prescient article in 2006 from the The Trumpet:
"Until the recent spike in oil prices, few realized the extent of America’s reliance on foreign oil. America is by far the world’s largest oil consumer, importing 63.5 percent of its daily oil needs. In 2004, America imported as much oil as Japan, Germany, China and India combined.
The world’s demand for oil and other resource commodities is rapidly increasing. China and India especially seem to be snatching up each new resource supply that enters the market. Oil, gold, silver, copper, zinc, nickel, and many other commodities, have all recently set multi-year or -decade price records—some, like oil, have set nominal all-time price records.
America is facing a massive problem—as a nation it relies on the kindness of foreigners to provide the things Americans need most. The sad reality is that America relies on foreign nations for everything from manufactured goods to energy, raw commodities and strategic minerals to providing money to finance its massive fiscal deficits.
Evidence is mounting that foreign nations are starting to take notice of America’s weakness."I love America — it's consistently been the freest and most capitalistic nation in the world. Why can't it sort out its damn supply chains, manufacturing and resource infrastructure and quit this free lunch bullshit that Kissinger and Nixon introduced in the 70s?
Old data my friend. 2010 we imported 49% of our oil.
http://www.eia.gov/energy_in_brief/foreign_oil_dependence.cfm
Let's assume that this figure is less smudged than those produced by other .gov departments (CPI, anyone?)
What would happen to the American economy if some black swan caused an oil shock that took 20% of that imported oil off the table?
America would face severe disruption.
Hence dependency.
Also:
http://205.254.135.24/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MTTNTUS2&f=A
Reagan cut imports at the start of his Presidency, but America never quite weaned itself off the habit, and bounced much higher later... There's not much to say that the dip from 2008 isn't just lower demand (with lower demand, the first cuts would obviously be to imports) as opposed to less dependency per se.
http://en.wikipedia.org/wiki/Energy_in_the_United_States#Oil_consumption
Did you even bother to look at why the #'s have changed? And they are correct. We would be in better shape than China, India and Europe if 20% of imports came off the table, because we export more refined product than that 20% represents. Look at the numbers...this has all happened w/o an energy policy. NGL's and biofuels are over 3mm bpd, and growing. Our energy sector is performing...hopefully we don't fuck that up.
Every day, America becomes more dependent on foreign oil and resources
BS. America imports less than half of our oil, and the %age of imported oil goes down every day. Except for oil, we import almost no resources. We may be fucked up in other ways, but we are resource rich, something China longs to be.
a_g, you da man. I'll go you one more, peak oil advocates are idiots.
China is only to be feared for the consequences of its collapse. A centrally planned economy cannot prevail. But, P.O.D., there's a billion of 'em! Right, and we're losing money, but making it up on volume.
Peak oil advocates don't count subsitution or unconventional oil/NatGas and the NGL's that come with them, or energy efficiencies that come w/ advances in technology. Or the worlds slowing population growth. Oil over $100 a barrel equals behavior change, which solves the problem. Shale oil is profitable at $40 a barrel, shale gas at $3-4 per MMbtu. Less if it is liquids rich.
The threat to future oil supplies is that much is controlled by governments.
china's just about as full 0'shit as we are...
FREE TIBET!!!
If by "white" you mean "red" and by "knight" you mean "pawn", then sure...a white knight it is...
Yeah. But we have the most extravagant and expensive weapons in the world!
Americans don't understand Asia and should stick to what they know best: destroying their own economy. Chanos is wrong about China and will lose money on the trade. Ackman is also wrong about the HGD and will lose money on that trade also.
Interestingly SSEX, a useful leading indicator, is holding major support at 2400 and appears ready to rally?
Sincere apologies for the multiple posts below, something went wrong with my connection to the net and Windows 7 went mad. I couldn't find a way to delete the duplicated posts. Sorry again.
Americans don't understand Asia and should stick to what they know best: destroying their own economy. Chanos is wrong about China and will lose money on the trade. Ackman is also wrong about the HGD and will lose money on that trade also.
Interestingly SSEX, a useful leading indicator, is holding major support at 2400 and appears ready to rally?
Americans don't understand Asia and should stick to what they know best: destroying their own economy. Chanos is wrong about China and will lose money on the trade. Ackman is also wrong about the HGD and will lose money on that trade also.
Interestingly SSEX, a useful leading indicator, is holding major support at 2400 and appears ready to rally?
yeah well the Shanghai B (mostly equities owned by non Chinese - major players) has been selling since the start of 2011.
China is done. That's it. Black money, grey money, corruption and bubbles. Full implosion due, like Chanos said... end 2011.
Check Copper
Apparently, the philipat American doesn't understand how to post comments.
Americans don't understand Asia and should stick to what they know best: destroying their own economy. Chanos is wrong about China and will lose money on the trade. Ackman is also wrong about the HGD and will lose money on that trade also.
Interestingly SSEX, a useful leading indicator, is holding major support at 2400 and appears ready to rally?
Americans don't understand Asia and should stick to what they know best: destroying their own economy. Chanos is wrong about China and will lose money on the trade. Ackman is also wrong about the HGD and will lose money on that trade also.
Interestingly SSEX, a useful leading indicator, is holding major support at 2400 and appears ready to rally?
Americans don't understand Asia and should stick to what they know best: destroying their own economy. Chanos is wrong about China and will lose money on the trade. Ackman is also wrong about the HGD and will lose money on that trade also.
Interestingly SSEX, a useful leading indicator, is holding major support at 2400 and appears ready to rally?
Ah yes, the "global ponzi" is "monetizing the debt". 21st century for "the Master is ass-raping your wife and there's nothing you can do about it."
Chanos knows his stuff but at the Clinton Global Initative with a semi ripped off EU logo? Clinton is a global grifter who skims tens of millions off of all the BS he does. Bush was an idiot to give African tens of billions and he let Clinton run the aid program. Poppy Bush and M Barker Bush loved the Clintons. One world vermin.
Chanos should know better than to be associated with a slime ball like Clinton.
Im a white Knight, not China.
The "long corruption" move could backfire when revolution sweeps across the corrupt nation.
China is the problem, not the solution.
china's bubble
they'll go to war long before that bursts
this situation sucks!
Dis information captain...right?
???
Your moniker I thought. What does x.inf.capt mean? Disinformation Captain?
as in use to be a NG inf capt
go troll somewhere else...
with who?
my guess, china establishing a trade route to europe through pakistan, plus trying to replace the oil they lost from the REBELION in libya. hope im wrong.
I worship no man, and all men are fallible, but I deeply respect Chanos for his consistency in making top notch long term calls.
I do think Chanos' thesis on China will ultimately prove Jim Rogers (who I really like, also) to be dramatically wrong on his 'China bull' case.
Chanos knows NOTHING at all about China! but just as many Westerners, he thought he knew a lot. What an irony! What a Tragedy! How Pathetic!
This is not an endorsement of the US, this is merely explaining his thesis vis-a-vis China based on data about the bad debts in the system. Hard to see how this is pathetic unless you are "religiously" invested in the position of China being infallible.
Got any data or ideas any more specific than, " he thought he knew a lot," champ?
Yes economic laws don't apply to the PRC. It is different this time.
Well put RB. It is ALWAYS different this time. Particularly in state run enterprises.
Yes, economic laws only apply to free-market capitalism. Clever central planners can make all consequences of mis-allocation of capital, credit bubbles, and corruption disappear by edict.
Says the Chinaman.
This is the real bubble:
Chanos knows NOTHING at all about China! but just as many Westerners, he thought he knew a lot. What an irony! What a Tragedy! How Pathetic!
This is the real bubble:
Chanos knows NOTHING at all about China! but just as many Westerners, he thought he knew a lot. What an irony! What a Tragedy! How Pathetic!
Chanos doesnt get it - Keynesianism is a religion and all it takes is unlimited belief. The Chinese reeeeaaaallllyyyy believe.
Have to keep the masses busy...can't have them idol.
This is bullish.. For war.
jim rogers thinks there's a chinese property bubble but disagrees with chanos about the effects on the broader chinese economy...
jim rogers - china property bubble
absolutely. ill take it from jimmy, who actually lives in asia and has his finger on their pulse, rather than, as rogers puts it, people who only recently learned to spell c-h-i-n-a. so far, chanos has been wrong, wrong, oh, and wrong.
agreed...btw maybe congress should learn something from the chinese regarding the "infrastructure bank"
china's empty city - nov 09
So, the collapse of China's opaque, ghost city galore, uber-bubble won't effect the economy? I think Rogers is hitting the Jiu a little heavy..
agreed...as much as i like jim rogers i don't understand how he can be so sanguine...my best guess is that it's a matter of timing...jim's probably thinking long term...he always says he's a terrible trader after all
Exactly. I think they may both be right. Chanos is shorter term. The question is how long the Chinese govt can prop it up. Rogers is bullish over the long term. Rogers could be wrong though because of demographics. China has FU'ed demos. Too many men, too old. Old like Japan. Poor Japan - post the nuke disaster has no future.
Chris Matthews seems fixated on Republican women and hired help.
"As a nation we must fixate on Republican women and their press ganged child labor."
- Chris's brother Dave
Dave Matthews that dumb South African fu*k with the incredibly lame ass music? He makes that arse Bono and U2 look original. Press ganged labor? Sounds like Nike and Apple - two big Dem contributors.
China doesn't have market-based interest rates. It's banks are absolutely tools of state policy. It doesn't even have a convertible currency. It has bonds, but they don't trade.
China is too different from the context to which we are accustomed. I'm not sure where one should even start when evaluating posts like this. Other than ask some Chinese people at the outset.
exactly. they are commies. and the plan in 100 year plots. we can't wait long enough for the premeire of glee for crimony sake
Amazingly, ever time I ask a Chinese about it they say not to hold my breath.
Hatred of the regime is expressed internally and behind closed doors. Outside they can't get enough. Again, they believe they can cheat their way to the top. BTW, they will continue to build our trinkets, they are absoultely dependant on it. Even as inflation goes <line through) remains through the roof, they need to build our trinkets.
I humbly disagree.
What the Chinese need is oil, specifically the oil they lost from Libya.
That is why japan fought us in ww2.
We put trade embargo against japan for their invasion of china.
( sound familiar)
I would suggest a few MS courses to understand this.
The Chinese need to work, whether as civilians or soldiers,
Lets hope as civilians
My first questions are these:
I see a lot of publically traded, debt-free companies with big current ratios. Will these companies get taxed to death in a downturn?
It is a solid lock that large Chinese banks will be recpaitalized by the states. Are there city/provincial banks that have less solid guarantees?
Will non-bank bailouts show up as forebearance on bank balance sheets?
OMG, you didn't just say that JM. And we do? Too funny bro.
When Obama tells Goldman what to do, I'll stand corrected.
Agreed jm
China will outlast chanos.
"...China will outlast chanos."
Perhaps, but at least Chanos has the courage of his convictions and puts his money there. IOW, if you're so sure he's wrong....bet against him. Should be easy money.
China as a culture has lasted for centuries (so in 1 sense you're right), but the current Chinese nation-state is unlikely to last because of the huge contradictions inherent in its operation. It is approaching the age when the Soviet Union imploded and it will soon follow that path and for the same reasons.
Those of us still around in 3-5 years will look back at what has happened to China (along with Europe, the US, India, the Middle East, Russia and Brazil) and say that all the signs were in plain sight but that almost everyone was too blind to see. Chanos is a one-eyed clear-seer in the kingdom of the delusionally blinded.
The times are very interesting to live in....lets hope the best wish of them all comes true....that we all learn to live peacefully and prosper.
I reall like Chanos, but don't buy into the China hard landing theory. No matter how you slice it, China will dominate the western world economically for the next 50 years, at least. Like it or not, that's what's happening.
+100
Fuck that. They basically said the same thing about Japan some 20+ odd years ago.
you know for all of the hype about how horrible japans lost decades were, i just dont see it. despite their "deflation", real estate in japanese cities over the past 20 years has been among the highest in the world. their citizens are among the worlds most responsible savers. their consumer technology is leaps and bounds ahead of ours. their export sector has been solid since their "supposed crash" in the 90s. oh, their stock market has slumped. so is that how we measure success now?...by the stock market? well then, gee, the u.s. is doing just fine then.
I think FUK-U-SHIMA will take care of those real estate prices.
Yeah ? For all the Japan-hating that China does, they have copied exactly the Japanese method. Kill your currency to keep the economy up and the citizens docile.
The problem today is that everyone wants to kill their own currency.
The difference between any discussion of China vs Japan model: China will soon (~2013) revalue (eventually free float) the RMB as it transitions to a self-sustaining consumer economy; and China will be successful. Japan could never have made this transition due to its tiny demographics.
"Never before in the history of man has something smaller ruled over something larger." This was said of Gret Brition in reference to the 13 Colonies, and it's true now of America vis-a-vie China.
China's internal economy trumps all others.
Demographics is destiy.
Japan had about 200 million population at the time of their currency appreciation thanks to the Plaza Accord. And the time, the average Japanese household income was about $58,000 in 1986 dollars. Fast forward to today, we have roughly 200 million "middle-class" Chinese population with average household income of $20,000 in today's dollars. Yes, China has huge population; but, compared to Japan, the Chinese middle-class consumer base doesn't even count. 99.99% of what you hear everyday about China in this country is simply brainwash carried out by presstitudes.
Be careful when comparing eras. For instance, the USD in 1986 was much stronger than it is today, there were about 40,000 more active manufacturing factories in operation, much lower unemployment, as well as substantial and growing GDP.
The erosion of our middle class is accelerating to the point of endangered-species status while China's middle class population is multiplying--the middle class of China alone is larger than the entire populace of America. I don't know what the average Chinese middle class income is, but once the RMB is free floated, fully appreciated, and the dollar fullly depreciated--well, it's pretty clear whose dominating who here.
RMB free float? I don't think we can see that in the near future. The Chinese ruling elite carefully studied the Plaza Accord and its impact on the Japanese economy, and they won't allow the RMB *free float*. China ain't Japan since China has not much knowledge-based industries and know-hows. They can only compete in labor cost, environment cost, the economy of scale and the super powerful facist state to make sure all those business costs are at minimun. Nothing else.
China wants to be taken seriously and knows ultimatly the only way to do so is to let their currency float. China wants to be a real player, a true alternative to the USD. Various Chinese officials are now on the reord essentially saying as much.
Dismissing China as simply another "Japan" is dangerious. China is so much more capable than Japan ever was.
This time it really is different.
China wants to be taken seriously and knows ultimatly the only way to do so is to let their currency float. China wants to be a real player
'China' wants no such thing. You're anthropomorphizing. There may be sub-sections of the Chinese government that want that, but are their voices louder (policy-wise) than those of manufacturers, who want a currency peg?
In some ways China is more disadvantaged than Japan was 20 years ago, because its central planners have more power, and it is more corrupt.
Before the bubble, there was lifetime employment policy in Corporate Japan for salarymen and I never saw any homeless people in Tokyo. Today, lifetime employment policy is unheard for the Japanese salarymen, and you see homeless sleeping in the parks in Tokyo. the list can go on and on about those dramaic changes that we have witnessed in Japan. And you're saying there is no debasement of lifestyle since 1990 in Japan?
Even though Japan is still expensive, it is but a whisper of what it was in 1989. RE prices are down 80-95% over that time. No longer is Tokyo valued at more than the rest of the planet Earth combined.
As for savings, the national rate has gone negative. An elderly population and twenty years of ZIRP made that possible.
You may not want to ask about unfunded pension liabilities.
You may not want to ask about unfunded pension liabilities.
They fixed that: To be eligible to recieve your pension savings in Japan you had to produce an obscure document which was part of the wad of documents you recieved when the pension savings account was opened. Millions of people had thrown that away with all the other bumf they got ... like ... 60 years ago. No paper - No Pension.
The Japanese are the kind of people who just accept their fate - while very angry for being screwed over and sad for having to get relatives to support them (or starve) they never do the sensible thing and torch some government buildings over the injustice.
"White knight" is not exactly the term I would use to describe China. Maybe "greater fool" would be a better choice.
And even China were a knight (and not the dragon), it would demand to sleep with the damsel before rescuing her.
What greater fool gets to industrialize that rapidly thanks to foreign subsidy and purchase of goods produced? How many greater fools have their shark come to their house and build a business for them, only to turn around and buy the products they make?
Are you sure you know who the fool is?
China has not industrialized very rapidly. Good grief! Their government has been in power for over 60 years and China is still a third world nation. Japan and Germany only took 20 years to reindustrialize after WW2. And Chine is way behind Taiwan and South Korea in GDP/person.
I think that China subsidizes the west much more than the west subsidizes China. They might industrialize a lot faster if their government wasn't so fixated on subsidizing cheap goods to the US.
I define the "greater fool" as the one who ends up holding the worthless government debt when the fiat system collapses. Right now, China looks to be a prime candidate for the position.