Legendary short seller James Chanos says a bubble is building in China’s financial system that could derail the global economic recovery.
“China is the engine of growth that will hopefully pull us out of the morass that we find ourselves in,” he said in a recent speech.
“But the closer you look at that engine, the more you begin to see that it may throw a piston rod soon.”
Chanos, founder of Kynikos Associates, stresses that he doesn’t expect a crash in China anytime soon.
“What we’re saying is that there are classic pockets of overheating and overindulgence,” he explained.
“The amount of overcapacity now being put in various sectors of the Chinese economy is beginning to worry people.”
The end result could be an acceleration of inflation and/or deflation in specific industries, Chanos says.
“We have without a modicum of doubt a credit driven property bubble going on in China now.”
Commodity prices will fall if Chinese demand wanes, Chanos says.
“If the China bid turns into a China offer, there’s going to be an air pocket in the prices of many of these industrial commodities.”
As much as Chanos sees a bubble in China, investment icon Jim Rogers does not.
“I find it interesting that people who couldn’t spell China 10 years ago are now experts on China,” he told The New York Times.
“China is not in a bubble."
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