Jim Chanos Still Shorting Chinese Banks

Gordon Chang: China Near End of Regime

Gordon Chang is author of `The Coming Collapse of China'

Ruchir Sharma: 10 reasons to believe in China slowdown story

Sharma, head of EM at Morgan Stanley, points out in this must-read article that China is now vulnerable to what he calls "middle-income deceleration," namely:
"China last year passed the $5,000 per-capita-income level, the same level (inflation-adjusted) at which all miracle economies - Japan, South Korea and Taiwan - slowed, generally by about four percentage points."

Another interesting observation is that China's fixed asset investment "hit an astonishing 50% of GDP - an unprecedented and unsustainable level for any major economy. China was spending more on infrastructure - pouring more concrete - than the US and Europe combined."

Sharma points out that China's wave of urbanizatiopn has largely run its course. To wit, "according to an early 2011 estimate from Capital Economics, there were only about 15 million people still underemployed in rural areas."

Demographics is another area of concern:
"Only five million Chinese will enter the core working ages of 35-54 this decade, down from 90 million during 2000-10."

Contrary to most analysst, Sharma believes that China also has a debt problem:
" ... the debt of households and corporations amounts to 130% of GDP - nearly 200% if the murky shadow banking sector is included."

"... In response to the crisis of 2008, China opened the credit tap so wide that there is now more money in circulation in China ($10 trillion) than in the US ($8 trillion)."

Finally, it is widely known that China is planning to shift to a consumption-based economy, but Sharma points out that "domestic consumption has been growing at an annual average of 9% for decades, which is a full percentage point faster than the average rate in Japan, and about the same as the rate in Taiwan, during their boom decades. Chinese consumption has been falling as a share of GDP only because investment has been growing even faster... The bottom line: if investment has to slow, and consumption can't grow much faster, then the overall economy has to downshift to a slower growth plane."

Read the full article: 10 reasons to believe in China slowdown story

Jim Chanos on His Big China Short

[From Maneet Ahuja's Alpha Masters: Unlocking the Genius of the World's Top Hedge Funds]

His Positioning:
Kynikos is short the property developers in China through the H-shares in Hong Kong as well as most of the larger Chinese banks, which the firm believes are going to need ongoing injections of capital, much of which will come from Western investors. The fund has been short an oddball collection of one-off Chinese companies, such as Chinese Media Express, that have floated issues in the United States. Chanos has dubbed casinos "long corruption, short property." But his overall short in China stands as one of the highest exposures he has had to a single theme. China is one thing he's betting against in a big way -- it currently stands as the highest exposure he's ever had to a single theme in the portfolio.

Chinese equity markets:
"So I think it's very problematic for Western investors to make money in the share market in China. Not only because I think the macro's bad, I think the micro's bad, too. You're basically being fleeced as the Western investor in many of these companies."

Chinese Debt:
"We estimated that China's total debt reached about 180 percent of GDP in late 2011. If we assume that China will grow total credit this year between 30 percent to 40 percent of GDP, and half of that debt will go bad, that is 15 percent to 20 percent. Say the recoveries on that are 50 percent. That means that China, on an after write-off basis, may not be growing at all. It may have to simply write off some of this stuff in the future so its 9% growth may be zero."

Gordon Chang: China on the verge of collapse.

Gordon Chang, Forbes, says China's economy is on the verge of collapse.

Hugh Hendry's latest letter focuses on China

[HT: ZeroHedge] After a long hiatus, Hendry is back with a bang with a long letter that predicts trouble in China, and posits that the root of its crisis will be its undervalued currency that has led to a huge debt buildup and a ginormous property bubble backed by the shadow lending system. In the process, he draw parallels to Weimar Germany and America during the great depression. Hendry continues to be bearish on Japan and most Asian assets.
April 2012 TEF Commentary

Jim Chanos continues to be bearish on China

With growth slowing, particularly in the real estate sector, Chinese banks have been a great place to bet against, hedge fund titan Jim Chanos told CNBC.

Chanos, the head of Kynikos Associates, has been betting against China — despite its role as a global economic leader — primarily because he believes the country is overbuilt and does not have the internal demand to support its ambitious growth plans.

Nowhere has that trend been more apparent than in the banking system.

"If you looked at the performance of the banks over the last two years...they have been great shorts. They have been going down — they're down 30 percent over the last two years."

An exchange-traded fund   that tracks the Chinese banks, the Global X China Financials [CHIX], is off about 27% since peaking in November 2010.

Much like in the U.S., there has been talk about breaking up China's large financial institutions because of the danger their failure would pose to the broader economy. And, like the American quandary, taking down the big banks is be easier said than done.

"I would believe it when I see it to break up the banks. In China, remember, the the banks are arms of state policy. They loan because the local party official or regional party official tells them we need a new stadium. They are instruments of state policy. I really doubt the party is going to give up a lever of power by breaking up the banks."

The Communist Party has been rocked lately by scandal, as the wife of local party chief Bo Xilai is a suspect in the murder of British businessman Neil Heywood. For the Chinese political system, the case is a game-changer, in that Bo was considered a rising star in the party and possibly headed for its top position.

"Some people have dubbed the party 'The Family,We're seeing more than a peek behind the curtain, we're seeing a real struggle."

Gordon Chang on China, US Trade

Gordon Chang, author of "The Coming Collapse of China," talks about the meeting between Obama and Chinese VP Xi Jinping, and the prospects of China giving financial aid to Europe.

John Brynjolfsson: China May Manage Soft Landing

John Brynjolfsson of Armored Wolf talks about the European debt crisis, China's economy and his investment strategy including commodities and high-yield bonds.

Gordon Chang: The Coming Collapse of China

Chang is the author of The Coming Collapse of China. He believes that the communist party will fall in 2012 because of the following reasons:
1. The end of Deng Xiaoping's progressive policies as evidenced by "indigenous innovation" rules and blocked acquisitions
2. The end of the global boom in 2008. Now most countries will try to export their way out of trouble and protectionism is likely to increase
3. Worsening Chinese demographics with the Chinese workforce projected to level off in 2013-14.
In addition, growth is slowing and civil unrest is increasing as the government struggles to contain the side effects of its massive stimulus in 2008.

The Coming Collapse of China: 2012 Edition- By Gordon G. Chang | Foreign Policy

James Rickards:China’s Slowdown Will Be Worse Than You Think

Rickards, the author of Currency Wars, says China may slow down to 3.5% GDP growth leading to yuan devaluation, which could then trigger QE3 via Nominal GDP (NGDP) targeting.

Classic Hugh Hendry Video on China (2009)

The FT had a piece today (Hedge fund alarm bells are ringing over China) that talks about how hedge funds are increasingly looking at China as the next source of global turmoil and sending their analysts over for first-hand field reports.

Hendry was one of the first people to bring attention to potential issues in the Middle Kingdom, and here's a classic from 2009 that's been getting some hits on YouTube lately.

Chinese Economy 2009

Pivot Capital: China Investment Boom on the Edge

From the indispensable ZeroHedge blog.PGVF 2011 China Investment Boom_on the Edge

Jim Chanos interview on China (Bloomberg)

The Chinese Banking System is extremely fragile (excerpt).

Longer interview

Interview with Wu Zhijian of Woodsford Capital

Wu Zhijian, CEO of Woodsford Capital Management has an excellent presentation (China into 2011: Bumpy Road Ahead) on the slowdown in China from Nov 2010 as well as a recent piece (China’s Reaction to European Debt Crisis) updating his thesis. A must-read!

Jim Chanos on Bloomberg (10.28.2011)

Chanos remains skeptical about the situation in Europe. The current European solution is a "band-aid at best." He is still a huge China bear saying that the country remains on a treadmill to hell except they are going even faster. He doesn't believe the numbers coming out of Chinese banks. Moreover, real estate transactions are down 40-60% YoY.

Jim Chanos on CNBC

Chanos continues to be skeptical of China's growth.

Jim Chanos on China (Bloomberg)

Jim Chanos talks to Bloomberg at the Global Alternative Investment Conference in New York

Chanos talks about China's SWF to buy shares in Chinese banks; He also sees the property market continuing to deteriorate. He remains short the European banks.

Some quotes:

• "Two months ago people thought there was nothing wrong with Chinese banks. This shows how quickly things have deteriorated"
• "The property market is in the first innings of a pullback"
• "Europe is following the same model as 2008 but without the capital raising"

Longer Jim Chanos Video (Bloomberg, September)

Longer video of Jim Chanos's interview with Bloomberg in September.

Jim Chanos on Bloomberg

Jim Chanos was on Bloomberg today speaking about China and the situation in Europe.
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