It looks like hedge fund manager Jim Chanos must be feeling pretty vindicated right now. For those who remember, Chanos – founder of $3 billion short-selling hedge fund Kynikos Associates – had warned us that China was in the midst of an unsustainable credit bubble.
This wasn’t a few months ago, or last year, but in 2009. Chanos was quoted in numerous media outlets, explaining that the Chinese economy was being sustained not just by exports, but by a property bubble driven by a stomach-churning amount of debt.
Chanos – who earned his fame by short-shelling Enron – is said to have first known something was up when he realized that few commodity producers had actually been hit by the global financial crisis. On the contrary, they were raking it in even as other sectors limped along. This lead to concerns over the property boom this consumption was associated with. He tells The New York Times’ Joe Nocera:
“I’ll never forget the day in 2009 when my real estate guy was giving me a presentation and he said that China had 5.6 billion square meters of real estate under development, half residential and half commercial.“I said, ‘You must mean 5.6 billion square feet.’”
He didn’t, he meant 5.6 billion sq m (or 60 billion feet). When Chanos shared his alarm with the financial establishment, many ignored him. They are not ignoring him now, and what Chanos has to say this time round is no less pessimistic. It’s no correction we are seeing, he told CNBC earlier this week, adding:
“It’s worse than you think. Whatever you might think, it’s worse.”
*Gulp*
Photo: Christian Schnettelker