James Chanos, a legendary short seller of stocks, has predicted for months that China is headed for economic disaster. And now he says that the downfall has begun, with the real estate sector in particular starting to sag.
“The cracks are spreading in the facade," Chanos, founder of Kynikos Associates, tells CNBC.
"You're seeing real estate firms shutter, sales offices closed down. Some of the engine behind the boom is at least beginning to sputter."
The central bank has raised interest rates four times in the past seven months to prevent inflation from getting out of hand. And it has succeeded in pushing the rate down to 5.3 percent.
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But Chanos’ worry is that the government will overdo it in trying to put a lid on the economy, especially the effort to curb construction.
"The fact of the matter is if they hit the brakes really hard, the economy goes into reverse, it doesn’t (just) slow,” he said. "Nobody will say that publicly because it's unbelievable. But it happens to be the way the numbers work."
Michael Pettis, author of the China Financial Markets blog, shares Chanos’ concern.
“The fundamental imbalances are all in place and are not beginning to reverse,” he writes, according to Business Insider.
“They will not reverse until there is a radical change in the growth model, and investment comes down sharply. Unfortunately that will also mean a sharp decline in growth.”
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