Wednesday, September 21, 2011

Jim Chanos On China

For all those who are firm believers in the Chinese miracle, please take in the caution coming from legendary short seller Jim Chanos.  He is the man who reviewed Enron's financial statement 10 years ago and had the courage to short the stock at its high and ride it down to zero.

I personally am bullish on China (and Asia's) currencies in the short and long term.

I am very bearish on Chinese real estate and stocks in the short term, but I am very bullish on their prospects over the next 20 years.  China will own this century in terms of economic growth, just as the United States was the growth engine of the world during the 1900's.

From Chanos on what he sees now:

"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."

A slow down in China would completely revalue expectations for global growth and projected earnings for future stock prices. (What drives the price of stocks today)  This will in turn create a policy "response" from Central Banks and governments around the world.
Jim Chanos Interview With Bloomberg: Click Here

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