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Jim Chanos Debunks The Myth Of China As The World's "White Knight"

Tyler Durden's picture




 

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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Tue, 09/20/2011 - 20:34 | 1690617 Jack Burton
Jack Burton's picture

Imagine for a moment the USA slipping back into recession and austerity late this year. Greece defaulting and setting off a collapse of banks in Europe and a domino effect on the other PIGS. Simply add in a Chinese bubble burst and world wide depression is a given.

Perhaps this prospect is why nations world wide have pumped massive funds into military machines when they face little or no foreign threats. Odds are these military forces are meant more for domestic use?

Tue, 09/20/2011 - 22:29 | 1690850 X.inf.capt
X.inf.capt's picture

.

Tue, 09/20/2011 - 20:35 | 1690618 disabledvet
disabledvet's picture

Apparently since no one is listening he's added a "Jim Chanos Theme Song" to help get his point across:

http://www.youtube.com/watch?v=E7Ic-WAlyhA&feature=player_detailpage

nothing like a call for back up when dealing with the media.

Tue, 09/20/2011 - 20:38 | 1690623 Zap Brannigan
Zap Brannigan's picture

In the same vein as post-WWII America, I believe China will find new uses for its manufacturing base after the demand for cheap crap dries up. Do they have issues? Sure, everyone does. As far as what happens after those issues manifest themselves, though, I think China comes out smelling pretty rosy.

Tue, 09/20/2011 - 20:41 | 1690632 Stax Edwards
Stax Edwards's picture

Nice post TD, we need more exposure of the "Chinese, State Run, Currency Manipulated, MassInflation, Cheater Society" around here.  Nice to see we can, at least on occasion, bash the non-western model.  These f'n chinese talk a good game, but look to us for their cues on EVERYTHING.  They just believe they can look to what we do, then cheat where needed to gain advantage.  Gross misallocation of capital via massive corruption.  Hard landing and cheap trinkets bitchez...

Tue, 09/20/2011 - 20:58 | 1690661 I am a Man I am...
I am a Man I am Forty's picture

geez, china isn't shit unless the rest of the world is at least doing average, not knocking on china, it's a great place for cheap manufacturing, but they are hardly a bastion of entrepreneurial advancement, Jim Rogers made his call on china so long ago before the shit hit the fan, he has to stick to his guns cuz he wrote a book, china has done well because they have a shit ton of cheap labor (poor people), that is it, everything else that i have seen is straight up copy the rest of the world and steal their ideas and replicate

Tue, 09/20/2011 - 23:02 | 1690903 chindit13
chindit13's picture

Jim Rogers has been a wild bull on China since the SSE was 5500.  Now, what is it this morning?  2450.  In terms of China, it is Chanos 1, Rogers 0.

I love Jim and on balance he is very good (besides being wildly entertaining).  His commodity calls were good.  He won't miss a meal this lifetime.  Regarding China, at least in terms of the equity market, he has been as successful as Joe La Vorgna has been predicting the US economy.

Tue, 09/20/2011 - 20:59 | 1690663 ricocyb13
ricocyb13's picture

being long on Macau casinos when those are trading at all-time-highs?

LOL

Tue, 09/20/2011 - 21:12 | 1690690 CitizenPete
CitizenPete's picture

OK, so your investing in a new business and development of a new high tech product which is moving into the manufacturing phase. Where you going to set up shop to get the best ROI from manufacturing and distribution?

 

A) South Carolina

B) Ohio

C) Detroit 

or

D) Shanghai 

 

Correct answer is D.   It would take you years and 5 times more wasted capital to dig trough all the US rules and regulations and taxes and whatever.  And BTW, you probably will sell more of the product now in a growing Asia then in the declining US, so you'll save on shipping and legal fees.  

Flame on bitches.  

Tue, 09/20/2011 - 21:25 | 1690720 Stax Edwards
Stax Edwards's picture

No argument here.  Factory work is not glorius.  It is better than no work on a rice paddie, so the poor work for slave wages and the government supports it.  We get cheap trinkets.  Winning

Tue, 09/20/2011 - 23:34 | 1690847 X.inf.capt
X.inf.capt's picture

again, i would rather see the chinese work in factories than as soldiers.

and wait till you see whats in store for us.

corporations who want to see american wages at par with chinese wages.

its all over cnbs.

Tue, 09/20/2011 - 22:16 | 1690830 Hacksaw
Hacksaw's picture

That all works until dead man walking globalism finally realizes he's dead and lays down. When nationalism steps back up to the plate all that makey cheap over there selly high over here will be over.

Tue, 09/20/2011 - 23:00 | 1690900 sethstorm
sethstorm's picture

Wrong, Sinophile.  Take away the supplicant labor pool of Asia, and China has nothing.   Cut ties with China, and it dies like the parasite it is.

The correct answers are:

B) Ohio and C)Detroit, MI, with half-credit for A) South Carolina

Industrial capacity, able workers, and a climate that gives more freedom to non-business entities than the slave labor nations ever could.

 

 

Wed, 09/21/2011 - 07:18 | 1691601 CitizenPete
CitizenPete's picture

This new technology will be made in china and will probably not even be offered for use in the US for some time -- too many EPA regulations, oil company kleptacracy, taxes, politics, etc.   I would love to employee Ohioans -- but it makes no economic sense. 

 America fell into the crapper when Americans fell asleep at the wheel and forgot the U.S. Constitution and that real capital comes from production and savings and not from cheap credit.    It was our and the past generations inattention to their corrupt US government (myself being a prime example) that caused our failure, and now some are trying to stop a steam roller that has already gone off a cliff from hitting the ground.  One can only hope that the US military breaks up due to lack of funding and distention among the top brass before the USSA lashes out in every direction in one final desperation to force it's will, debt, and political garbage on the rest of the planet. 

Americans love sucking on tit and the FED was happy to undo their blouse and milk feed all the little piggies all the way to sovereign insolvency.  Now that the American borrow and spend has switch back to tax and spend, the USSA have found they are sucking sour milk from hind tit and the USSA government finds themselves once again sucking central bank prick.  Americans citizens borrow and spend, along side the USSA government who spends like a drunken sailor on leave, and then borrows more from the privately owned FED, resulting in taxes for everyone who can still pay. So it becomes a game of who can buy off politicians, effect the laws and regulations, and work the system the most cost effectively. Because you must pay the bank bond holders and owners back (or bail them out) all the while the ever-growing government pig takes their haircut.  170 trillion +++ in debt and unfunded liabilities -- so, figure it out -- default on the interest is just about here.  Continuity of government measures, Civil unrest, violence, and WAR will surely follow.  USSA will outsource the blame, but we only need look at  the reflection on your darkened 32" flat screen TV. 

http://usdebtclock.org/

The Chinese citizens save their money then spend it and the average person doesn't owe a dime to anyone.  If they purchase a house or apt. they have to put down 30%+ (50%+ on a second home) and the loans are never forgiven even in the event of death relatives must pay.  The biggest issue they have to deal with is food inflation.  China's revenue SURPLUS last year was 1.3 Trillion RMB.  USSA deficit is Around 1.3 Trillion Dollars.  Notice a trend here? 

Local governments in China are indeed overextended.  They have been building power plants, transmission lines, highways, communications, water and sanitation, etc.  Is there corruption and graft?, absolutely.  Luckily for you the US government, major US corporations, and the Military Industrial complex, are squeaky fking clean, right?  (9/11 comes to mind)

The USSA continues trying to export its inflation and parasitic FED paper (a.k.a. the US Dollar) into China as it has done via it's Bankster agents in the EU, but the USSA will catch it in the end.  The Federal Reserve Note is the parasite of the planet -- the US dollar represents all unfunded toxic unfunded garbage that exists.  Its the vehicle and container for the currency bankruptcy that is coming. The US Dollar represents the fall guy and only a few like Dr. Ron Paul see the imuttable truth that is in your face.

http://www.youtube.com/watch?v=bGo_NL-eclw

The Chinese have already taken steps to decouple from the USSA disaster and if need be they can decouple from the Federal Reserve Note, because unlike the USSA government (owe are economic slaves to the FED),  Beijing controls it's currency, economic policies, and their banks.  The IMF and FED Banksters control Washington D.C. and the MIC.

What's in your wallet? 

Steins Law says: If something can not go on forever it will stop.   The USSA steam roller already fell off the cliff and will come to a halt well before China and the rest of Asia see any crash.  

 

Tue, 09/20/2011 - 21:16 | 1690700 shaxmatist
shaxmatist's picture

Chanos has predicted 21 of the last 0 recessions in China.

Broken clocks dont even start to describe this guy.

Tue, 09/20/2011 - 23:06 | 1690908 chindit13
chindit13's picture

And he's made money on every one.  Chanos got bearish on China at SSE 5500.  The SSE is 2450 today.  Would that we all could be so wrong 21 straight times!

Tue, 09/20/2011 - 21:36 | 1690751 pamriallc
pamriallc's picture

Chanos is correct "directionally" but completely off of his rocker with respect to solvency.  Here on the ground we review the facts.  Appreciate the armchair view from a fund that can short anything and drive prices around.  Thats mechanics, not "investing" per se.

We chastize the open politics of calling a country with "10% of GDP in Bad Debt" somehow without a future or means... when the SAME country sits with $3 TRILLION in FX reserves which equates to roughly 70% of total GDP!

Let's review the CHANOS MATH and the DANGERS of the SLIPPERY SLOPE he has embarked upon.

Chanos may well predict the decline in prices, and that's fine, but the other math is completely irrelevant.  By extension to his argument over government implied guaranty.....relative to the FEDERAL RESERVE and what the US Government either directly or indirectly guarantees on behalf of its TAXPAYERS (a HUGE 5% of the WORLD population) we'd rather opine (however incorrectly, but referencing CHANOS MATH school) that the US Goverrnment is the guarantor to Mexico (1995) Europe & Asia (1998) and Europe again (2008) and currently FNM/FRE plus another $13TLN of intra-government debt and state debt via the "Build America Program" and then yet more through Federal issuance of $15TLN to date.  Pile on the NPV of Social Security and Medicare, etc.... CHANOS MATH suggests the USA is on the hook for an eerie, plantetary combined liability of $278 Trillion with zero net cash in the bank except for what it can print.  All backed by the quiet, 20% unemployed 5% of the world population group called the US Tazxpayer / Citizen.

May Chanos rest in peace for such ridiculous propoganda.

Tue, 09/20/2011 - 22:27 | 1690848 ZY60
ZY60's picture

Here's the interesting difference, there's "transperancy here in the US on SS and Medicare( I know pollyanna-ish but far more than China). AND At least the debtholders here are out in the open.  Who's holding all this debt on all of these Chinese companies that are "state-owned".  This country is mobilising a billion plus people and playing solely by their own rules. So be it,,,it's a big mobilization. BUT,,,,Whilst ripping off global IP, not playing nice in the sandbox with Automakers, minerals, entertainment, technology, and so on,,,,,they are playing acctg games that make Fastow look like an amateur at best.

The biggest question on the Chanos discussion is "WHO's holding the DEBT?"

 

 

 

Wed, 09/21/2011 - 09:33 | 1691989 matrix2012
matrix2012's picture

one line summary: a nation that knows enough to not be fooled and dictated! Thats all guys

Wed, 09/21/2011 - 09:34 | 1691990 matrix2012
matrix2012's picture

one line summary: a nation that knows enough to not be fooled and dictated! Thats all guys

Tue, 09/20/2011 - 22:57 | 1690895 chindit13
chindit13's picture

Do you understand what foreign reserves are?  You think it represents some pool of savings available for investment?  It is surprising how many supposed professionals make that mistake.

If China manufactures a widget at a cost equivalent on $100, then sells it to Walmart for $90, China gains $90 of Foreign Reserves.  Big deal.

China has FX reserves because Chinese companies hand over dollars to the CB, and the CB then prints new yuan and hands it to the company.  That is one reason why China is outprinting Bernanke on a relative basis 4:1.

Wed, 09/21/2011 - 01:04 | 1691209 Jack Kreuz
Jack Kreuz's picture

That's right. The renminbi is backed by China's FX reserves, which are mostly US Treasuries. At $4.4 trillion, the People's Bank of China's balance sheet is larger than the Fed's. China's bank reserves are $2.4 trillion, which, at a 20% reserve ratio, implies $12 trillion in bank credit in a $6 trillion economy.

http://www.pbc.gov.cn/publish/html/2011s04.htm

Tue, 09/20/2011 - 22:31 | 1690853 JW n FL
JW n FL's picture

 

 

I am selling ALL my PM's Buying Panda Bonds and learning to speak Chinese BITCHEZ!!!

no, not really.

if america was a bubble with fake paper work for real buyers?

what is china with no buyers and no one can afford to buy?

and when china goes so will the winning casino's!

china as a whole is a fucking hole.

Wed, 09/21/2011 - 00:02 | 1691061 IronShield
IronShield's picture

Don't know of source so Caveat Emptor (found in comments section of the following article: http://www.ft.com/cms/s/0/df1be35e-9073-11e0-9227-00144feab49a.html#axzz...):

The US and China must align their economic and national security for any nation and the global economy to have economic and national security. A China-US Grand Strategy Agreement for Presidents Hu and Obama was drafted by the Center for America China Partnership with input from China’s former Minister of Foreign Affairs and UN and US ambassadors, former Deputy Chief of the General Staff of the PLA, former Military Attaché to North Korea and Israel, former Vice Minister of Commerce, and the Institute of International Strategic Studies of China’s Central Party School, Chinese People’s Institute of Foreign Affairs, China Center for International Economic Exchanges, China Institute For International Strategic Studies, China Foundation for International & Strategic Studies, Boao Forum, and China Institutes of Contemporary International Relations. This is the resulting text: 

“Proposed U.S.-P.R.C. Presidential Executive Agreement For Peaceful Coexistence & Economically Balanced Relationship

Presidents of U.S. and P.R.C. sign an executive agreement containing each nation’s pledge that:
1. U.S. and P.R.C will never go to war with the other;
2. Each will respect the other’s sovereignty and distinct political and economic systems;
3. U.S. pledge to eschew regime change in P.R.C. and of non-interference in its internal affairs;
4. P.R.C pledges to continue its economic, social, and political reforms.
Taiwan Pledged demilitarization of Taiwan situation, to include:
i. Informal U.S. moratorium on arms transfers to Taiwan;
ii. U.S. President’s adherence to defense requirements of Taiwan Relations Act of 1979 is achieved through the following alternative means;
iii. P.R.C. reduction of strike forces arrayed against Island;
iv. U.S. reduction of strike forces arrayed against P.R.C. Mainland; and
v. Negotiation and promulgation of confidence building measures between U.S. and P.R.C. militaries.
North Korea Pledged de-escalation of strategic uncertainty surrounding North Korea nuclear program, to include:
i. U.S. eschews regime change in North Korea;
ii. P.R.C. encourages North Korea to adopt economic reform policies to be implemented on terms appropriate to North Korea’s own situation;
iii. North Korea agrees to terminate nuclear program and resume economic cooperation with South Korea; and
iv. U.S. and P.R.C. support peaceful reunification of North and South Korea on terms and timetable determined by North and South Korea.
Iran Pledged management of relations with Iran to include:
i. U.S. eschews regime change in Iran;
ii. P.R.C to support Iran’s peaceful development of its nuclear energy program;
iii. Iran to willingly submit to regular international inspections of its nuclear energy program; and
iv. U.S. to eliminate trade restrictions and promote trade with Iran.
South China Sea & East China Sea Pledged management of sovereignty disputes to be solved peacefully and bilaterally, to include:
i. P.R.C. sets up multilateral South China Sea Regional Joint Development Corporation with neighboring claimant states; and
ii. P.R.C. pledges to negotiate resolution of all such disputes on the basis of the P.R.C.-ASEAN agreement entitled, “The 2002 Declaration on the Conduct of Parties in the South China Sea.”
ASEAN Economic and Peacekeeping Collaboration U.S. and P.R.C pledge:
i. Harmonization and coordination of their respective roles in regional economic and security forums;
ii. Pursuit of peaceful coexistence in their bilateral relations with other Asian nations; and
iii. Promotion of economic stability and growth of ASEAN nations in their multilateral relations within ASEAN, APEC, etc.
Military-to-Military Ties U.S and P.R.C. pledge to cooperate on international and non-traditional security issues, to include:
i. Lifting of U.S. embargo on military sales to China;
ii. Regular scheduling of joint naval exercises in Asian waters, with standing invitations to other regional navies;
iii. Permanent expansion of officer-exchange program;
iv. Creation of joint peacekeeping force/command in conjunction with other countries within the UN Security Council framework;
v. Expansion of U.S.-P.R.C Maritime and Military Security Agreement to include frequency of U.S. close-in reconnaissance; and
vi. Establishment of joint commission collaborating annually on U.S. and P.R.C. technology sharing and transparency of budget expenditures.
Existing and Future International Institutions and Issues U.S. and P.R.C. pledge to support continued reform of existing institutions (e.g., UN, IMF, World Bank, WTO, G20) to better reflect the evolving global economy and international issues, to include climate change, Doha Agreement, etc.
Strategic and Economic Dialogue (SED) To implement the new collaborations listed above:
i. SED becomes permanently sitting commission for continuous senior-level communications and collaboration on economic and security issues; and
ii. SED reviews all existing tariffs, WTO complaints, and other trade and economic disputes and issues.
P.R.C. Investment into U.S. Economy P.R.C. pledges to invest up to 1 trillion USD directly into U.S. companies at direction of U.S. President in exchange for:
i. U.S. removes trade restrictions and high-technology export bans with P.R.C.;
ii. P.R.C. commits to purchase sufficient amount of U.S. goods/services to balance bilateral trade on annual basis;
iii. P.R.C. companies’ access to U.S. market made equal to that of U.S. companies access to P.R.C. market;
iv. Ownership limit for new P.R.C. investments in U.S.-owned or controlled corporations limited to 45 percent of shares, with additional 10 percent reserved for preferred equity/pension funds on a case-by-case basis and final 45 percent remaining with non-P.R.C. ownership;
v. Ownership limit for new U.S. companies’ investments in P.R.C. limited to 45 percent with additional 10 percent reserved for preferred equity/pension funds on a case-by-case basis and final 45 percent remaining with P.R.C. ownership;
vi. U.S. and P.R.C. to facilitate global joint ventures between U.S. and P.R.C. companies, with initial example to involve major U.S. firm, possibly General Motors; and
vii. U.S. and P.R.C. to collaborate in SED on goal of full employment throughout each economy, targeting in particular areas suffering inordinate unemployment or needing special economic growth arrangements.
Other Areas of Bilateral and Multilateral Cooperation P.R.C. and U.S. to collaborate:
i. Implementing principles in the Preamble, Article 1 of the UN Charter;
ii. Rehabilitation of failing and failed states seeking assistance;
iii. Combining U.S. and P.R.C. markets, technology and financing to ensure affordable costs for all nations of effective pollution remediation and sustainable energy and financing of globally needed technology; and
iv. Joint space exploration with other UN member states.
No Creation or Operation of “G2” Arrangement Nothing in this Executive Agreement constitutes, is intended to, nor permits the creation or operation of a “G2”, and instead this Agreement:
i. Establishes an improved framework of collaboration among the U.S., P.R.C. and other UN member states;
ii. Neither seeks nor infers any formal alliance between the U.S. and P.R.C.; and
iii. Creates a new U.S. and P.R.C. partnership commitment to the Principles of Peaceful Coexistence in the UN Charter.

Mutually agreed on the ____ day of ____________ 2011.

U.S. President Barack Obama P.RC. President Hu Jintao”

The next step step in obaining President Obama’s acceptance and the implementation of the new China-US Grand Strategy is the America China Partnership Foundation preparing a report explaining where and how the 12 million U.S. jobs can be created which will help create the political support in the U.S. that President Obama needs for the implementation of the proposed new China-US Grand Strategy.

Tue, 09/20/2011 - 22:49 | 1690882 chindit13
chindit13's picture

China has no long term supply chain and lacks many of the key resources to support a modern---not Medieval---economy.  Any "deal" it might have made is subject to whims of fancy, nationalism, and local politics in its source lands.  The US has many of the same problems, but the US is fortunate enough to not only have far more resources relative to its needs, but also a thinly populated, resource rich and friendly neighbor in Canada.

China has done a good deal of courting and "secured" supplies in nation states that are not exactly bastions of political stability, and up to now China lacks the ability to project the military power that might prove necessary to keep those supplies secure.

One example:  China has secured virtually all of the resources of Burma, a resource rich country led by a military junta.  Unfortunately for China, the resources it wants are located in areas peopled by many of Burma's 135 recognized ethnic minorities, most notably Kachin State and Yakhine State (aka Rakhine, Arakan).  These two areas represent the bulk of Burma's wealth, which is another way of saying the bulk of the ability of the junta to maintain power (and enforce the contracts it has signed with China).

The natives, however, have become restless.  China is quite literally raping Kachin State, the source of much of Burma's precious metals, industrial metals, jade and gemstones, tropical hardwoods and dam-able rivers.  The land has been made barren as a result of open pit mining and over-harvesting of timber.  The land and groundwater have become polluted by the mercury, lead nitrates and thio-cyanates used in the mining processes. Dams, one in particular at the confluence of two rivers held sacred by the Kachin people, have altered the flow of water needed down country, displaced tens of thousands of inhabitants, provided a sum total of zero jobs for Burmese (20,000 laborers to build the 450' high dam at Myitsone were imported from China), and not one watt of power will be available in Burma or Kachin State after the dam is finished.

The Kachin people, who invented guerilla warfare and were instrumental in driving out Japanese invaders in WWII, have risen up.  They have set off bombs at a number of dams, killed some Chinese workers, and blocked the only road that carries supplies from China to the construction site.  The Chinese government "encouraged" the Burmese junta to attack the Kachin fighters, supplied up-to-date weapons to the Burmese junta to carry out the attacks, and lent the government extra funds to finance the fighting.  So far it is a draw.  It is also China's latest example of how it will carry out its "foreign policy" (not that the US is any better).

This Kachin insurgency has not gone unnoticed by the other ethnic groups in Burma, who see an opportunity to form a united front against the dominant Burman ruling elite.  Already there is increased insurgent activity in Karen, Kokang, Wa and Mon areas of the country.

China is also the largest player in Burma's offshore gas fields, which are situated off the Yakhine (western Burma) coast.  China is constructing two 400+ mile pipelines from Yakhine to Kunming, one of which will carry gas from Burma's offshore fields, the other will carry Middle Eastern oil, ostensibly saving China 14-20 days of transport through the pirate infested Malacca Straits.

Once constructed, these two pipelines---which run through a dozen major ethnic regions---will require fully one third of Burma's standing army to guard it.  Good luck.

If Kachin State falls, the Yakhine and Rohingya people of Yakhine State may become emboldened and do what the Kachins are trying to do.  Take away the mineral and timber riches of Kachin State, plus the carbon riches of Yakhine State, and the Burmese junta falls due to lack of money.  All contracts then go out the window, and China has to compete with India, and even the US, to secure Burma's riches.  Indeed, one might suspect India---no friend of China---has a vested interest in helping the Kachin and Yakhine people realize their ambitions for autonomy and tossing out the junta.

That is just one "developing country" where China has supposedly secured needed resources.  Others may be able to explain just how stable and dependable are China's relationships with the Sudan, Angola, the Congo, etc., or even China's claims over Asian resources in waters co-claimed by the Philippines, Malaysia, Japan, South Korea and Vietnam.  No need to comment on Libya:  the Libyan people seemed to have decided that one.

Now just one bit of anecdotal data:  sometime around the beginning of August China---at least from the perspective of Burma---has fallen off a cliff.  Chinese had been instrumental in fueling a property bubble of epic proportions in Burma (10,000% in ten years---that is not a misprint), even though foreigners are prohibited from buying land. (They pay off officials.) China had been buying upwards of $5 billion per year of jade from Burma, a figure which completely altered the government revenue stream ($8 billion total per year in gas, oil, timber, foodstuff sales before the jade buying).  Last month it stopped.  Cash dried up.  The majority of the jade and property buying was done by Chinese who borrowed from China's shadow banking system, where rates can reach 5% per month, but where borrowers do not have access to the major banks.  (Major banks in China loan to major corporations---plus unprofitable SOE's....the corps then loan to the small institutions or loan sharks who make up the shadow banking system.  Like a Rube Goldberg drawing, it is all connected.) 

Something put a halt to what had been a regular inflow---even avalanche---of money into Burma.  The economy in Burma has gone into a dive.

Finally, as for Chanos, he has been dead right in the most important measurement yardstick:  he has made money shorting the SSE.  Whether or not China's economy has gone into negative growth, or would be absent the massive previous credit-driven growth minus bad debt---is immaterial.  What is material is that Chanos has made money.  It will be interesting to see just how profitable China's companies really are once the real estate "gains" stop flowing through the income statements.  Just how profitable---or not---are ongoing operations?  We'll see.

Wed, 09/21/2011 - 01:17 | 1691236 stev3e
stev3e's picture

Thank you for taking the time to write this informative post.

Wed, 09/21/2011 - 21:51 | 1695389 Not For Reuse
Not For Reuse's picture

I agree, thx for the time spent commenting recently. Loved the recent 911 input as well

Tue, 09/20/2011 - 22:52 | 1690886 Iwanttoknow
Iwanttoknow's picture

One cannot have a rational discussion when one harbors viscral hatered of something.China is somewhere inbetween.However,I remember how I would laugh hysterically,reading chairman's pronoucement in the late sixties,as a precocious teenager.He called US "paper tiger".Looking back, maybe the laugh is on me.

Tue, 09/20/2011 - 23:22 | 1690961 chump666
chump666's picture

hahahaha it's on...

"WSJ BLOG/Real Time Economics: IMF a Little More Worried About China" published at 9:01 p.m. EDT. The item was published erroneously

(END) Dow Jones Newswires

Tue, 09/20/2011 - 23:24 | 1690963 chump666
Tue, 09/20/2011 - 23:58 | 1691050 irieblue
irieblue's picture

How is Chanos Shorting China? I thought there was no shorting in the Chinese Stock Market

Wed, 09/21/2011 - 02:21 | 1691346 chirobliss
chirobliss's picture

Short the suppliers, BHP, Rio Tinto, Vale, the AUD, Hong Kong companies etc, CAT, DE, Komatsu, short copper, short SINA (that was fun today), short SINO Forrest to name a few.

Wed, 09/21/2011 - 00:28 | 1691130 IMA5U
IMA5U's picture

i hate carol massar   she is annoying

Wed, 09/21/2011 - 00:52 | 1691183 pebblewriter
pebblewriter's picture

In tomorrow morning's delayed release of Chapter One of the IMF's September 13th Global Financial Stability Report, the world will be advised not to hold its breath for the Great Chinese Rescue of 2011.  From the WSJ:

While the International Monetary Fund forecasts torrid 9.5% growth this year in China, the IMF is clearly getting a little more worried that China's boom could turn to bust.  In the IMF's Global Financial Stability Report, released on Wednesday morning [oops], economist Andre Meier assessed the risk of a banking crisis in China and is less than reassuring.  A huge expansion of credit in China since 2008 helped that country prosper despite the global financial crisis.  But that lending spree may produce "significant write downs" on debts by local governments, the IMF report says, citing private sector analysis.

A blurb summarizing the report was mistakenly and momentarily posted on the WSJ Real Time Economics blog tonight, only to be immediately removed.  Other Google references to the article were removed as I watched

Is this simply a matter of proper protocol, or could the report be so incendiary as to require something of a quarantine? 

For more:  http://pebblewriter.blogspot.com/2011/09/news-so-big-it-had-to-wait.html


Wed, 09/21/2011 - 01:02 | 1691204 chump666
chump666's picture

check my post above re: DJ news wires

Wed, 09/21/2011 - 02:21 | 1691349 yabs
yabs's picture

I can vouch foir what he says

I am herew now and the entire east coats in on e big consytruction site

makes the bubbles in Spain and the USA look tame

Wed, 09/21/2011 - 02:33 | 1691366 Ursa Major
Ursa Major's picture

I am sooooo worried. I was first warned of the upcoming collapse of China...in 1994! Meanwhile, the economy has more than tripled...obviously, with 10% growth one can manage quite a substantial debt load. Chanos has been warning again and again...he is talking his own book! Caveat Vendor!

 

Wed, 09/21/2011 - 02:36 | 1691379 yabs
yabs's picture

ursa

they can lie all they want but the fact remains they are building zombie cities

I see apartments everywhere but hardlky ANYONE is in them

I* asked a local who buys them and he said its rich peop;le speculating

so there you have it they are trying to flip property

its a giant bubble

the biggest the world has ever seen

Wed, 09/21/2011 - 04:35 | 1691489 Volaille de Bresse
Volaille de Bresse's picture

"When are you going to publish something more balanced on China, Tyler? "

 

I might add "When are you going to publish something more balanced on Europe, Tyler?" 

These Reggie rants against the Euro reek of behind-the-curtain manipulation.

Reggie is a slave to the fat cats who hold on a leash and tell what to do what to say and what to think. You're still in slavery Reg! Break yor chains and buy a mule! Be a MAN not a servant!

Wed, 09/21/2011 - 04:45 | 1691495 Volaille de Bresse
Volaille de Bresse's picture

"TPTB in the US know exactly what is going on, and what they are doing"

 

I seriously doubt that... They're more like the guys in "Deliverance" (1972) : as soon as the river goes wild they lose control of things... land half-drowned on the shore... and get butt-fucked by local savages. 

 

The state of thing is the river, and the savages are... THE CHINESE! The U.S. should invest in lube cos let me tell you sth : the Chinese are dying to butt-fuck you

Wed, 09/21/2011 - 04:51 | 1691500 Volaille de Bresse
Volaille de Bresse's picture

"The only explanation is that the asset values are being supported by debt"

Are you refering to China or... the U.S.? (confused)

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