Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

China's Economic Growth Won't Last; Chanos on Chinese Property Bubble and Growth

Economics / China Economy Sep 21, 2011 - 05:11 AM GMT

By: Mike_Shedlock

Economics

Best Financial Markets Analysis ArticleFund manager Jim Chanos spoke to Bloomberg TV’s Carol Massar about China's economy, debt and real estate market.

Chanos said that growth in China may be zero and that China has “European kind of numbers” when it comes to debt.



Partial Transcripts

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."

Misleading Indicators

Please consider China Stocks Advance Most in Four Weeks as Leading Indicator Shows Growth

China’s stocks rose, sending the benchmark index to its biggest gain in four weeks, after a gauge of economic indicators signaled growth is withstanding Europe’s debt crisis and faltering expansion in the U.S.

“Valuations have reached a bottom, leaving limited room for further declines,” said Mei Luwu, a fund manager at Lion Fund Management Co., which oversees more than $7.8 billion. “Volatility will rise in the market as investors bet on the timing of a rebound.”

The index “signals a continuation of economic expansion through the end of this year,” Jing Sima, the board’s New York- based economist, said in a statement. “The rate of economic growth will be slower in 2011 than last year.”

The IMF estimates the Chinese economy will grow 9.5 percent this year, down from a forecast of 9.6 percent in June, and 9 percent in 2012. The fund lowered its estimate for world growth this year to 4 percent from the previous 4.3 percent forecast.

Expect Huge China Slowdown

Developers not getting paid, coupled with excessive and unsustainable credit growth, trumps alleged leading indicators.

For another view on the coming slowdown in China, please consider Michael Pettis: Long-Term Outlook for China, Europe, and the World; 12 Global Predictions.

Pettis, unlike Chanos does not foresee a China "crash" but at a minimum, those expecting huge growth certainly will not get it.

Here are 12 predictions by Pettis (Please see article for detailed explanations regarding China).

To summarize, my predictions are:

  1. BRICs and other developing countries have not decoupled in any meaningful sense, and once the current liquidity-driven investment boom subsides the developing world will be hit hard by the global crisis.
  2. Over the next two years Chinese household consumption will continue declining as a share of GDP.
  3. Chinese debt levels will continue to rise quickly over the rest of this year and next.
  4. Chinese growth will begin to slow sharply by 2013-14 and will hit an average of 3% well before the end of the decade.
  5. Any decline in GDP growth will disproportionately affect investment and so the demand for non-food commodities.
  6. If the PBoC resists interest rate cuts as inflation declines, China may even begin slowing in 2012.
  7. Much slower growth in China will not lead to social unrest if China meaningfully rebalances.
  8. Within three years Beijing will be seriously examining large-scale privatization as part of its adjustment policy.
  9. European politics will continue to deteriorate rapidly and the major political parties will either become increasingly radicalized or marginalized.
  10. Spain and several countries, perhaps even Italy (but probably not France) will be forced to leave the euro and restructure their debt with significant debt forgiveness.
  11. Germany will stubbornly (and foolishly) refuse to bear its share of the burden of the European adjustment, and the subsequent retaliation by the deficit countries will cause German growth to drop to zero or negative for many years.
  12. Trade protection sentiment in the US will rise inexorably and unemployment stays high for a few more years.

Valuations Not at Bottom

In the face of coming writedowns, alleged "cheap" valuations will likely get much cheaper.

As Minyanville's Peter Atwater is fond of saying "At the top of every credit cycle, the Income Statement is the Past, the Balance Sheet is the Future"

Atwater's statement applied to "financial institutions", but Ponzi financing is everywhere you look in China and the ripple effect will hit every company just as happened in the US credit bust (soon to be resumed).

Income only counts if you get it. Developers not getting paid is a huge warning sign

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2011 Mike Shedlock, All Rights Reserved.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in