Investors should be ready to sell Chinese assets because the real-estate sector is overheating and will make any overall economic corrections rough, says Jim Chanos, founder of Kynikos Associates, a hedge fund focused on short selling.
"Fixed-income investment is now a record 70 percent of the Chinese economy," Chanos tells the Financial Times.
A big chunk of that investment is tied up in the real-estate sector, which is bubbling and threatening to pop.
"The problem is that consumers are less and less of this economy as this property bubble has gone on and a large amount of consumption that the consumers are embarking on is real-estate related — it's furniture, it's appliances — these sorts of things you buy when you're buying a new house or condominium," Chanos says.
"Any time you try to take something that's 70 percent of your economy and rein it in and transition, history tells us that usually the risks are to the downside."
In 2010, China lead the world in real-estate transactions at $197 billion, according to Real Capital Analytics, up 23 percent from 2009, Bloomberg reports.
Even former Chinese monetary officials fear prices are soaring out of control, including Yu Yongding, senior fellow at the Chinese Academy of Social Sciences and former member of the monetary policy committee of the People's Bank of China, according to The Telegraph.
"The demand for houses is still tremendous. So there is a tug of war between the central bank and the real-estate developers. If the bank loosens [the property] policy there may be a re-emergence of a real-estate bubble."
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