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article imageIs China's economy about to implode?

By Kevin Jess     Jan 10, 2010 in World
The builder of one of the largest fortunes on Wall Street is warning that China's economy is heading for a crash rather than sustained growth as most economists predict.
Superstar short-seller James Chanos is betting that China's economy, now the envy of the world will soon crash, and badly at that.
Chanos built his fortune on his ability to see the future collapse of companies whose stories were too good to be true, such as Enron.
Mr. Chanos is worried that China's surging real estate sector, brought on by huge investments in speculative capital, looks like, "Dubai times 1,000 or worse." He even has suspicions that China may be falsifying its economic numbers including its growth rate of more than 8 per cent, reports the New York Times.
He is not entirely alone in his suspicions.
Victor Shih, a China expert at Northwestern University says Chinese government bureaucracies are funding themselves by pushing their debt onto state-owned businesses and that local governments are raising capital by selling land at sky high prices to corporations they own.
Shih says, "It's a Ponzi scheme whose head is the central bank, and it can print money," reports Forbes.
According to Forbes, Chinese cities are building more office towers and luxury malls than can be leased for many years to come. Tianjin, a city not far from Beijing will soon have more prime office space than will be leased for the next 25 years at the current absorption rate.
Mr. Chanos asserts "The Chinese are in danger of producing huge quantities of goods and products that they will be unable to sell."
Chinese analysts are concerned that a huge rise in construction, lending and speculative buying which saw housing starts soar 194 per cent in 2009 may be a bubble that will burst as early as this year, reports Daily Finance.
The Chinese government has also become concerned prompting a statement from Premier Wen Jiabao who said in late December "property prices have risen too quickly." He has reportedly promised new limits on speculative borrowing, such as raising the deposit requirements to purchase raw land to 50 per cent.
In the first half of 2009 Chinese exports, from which China is heavily dependent, actually dropped by 22 per cent and they are still declining bringing about a major hit to the country's income.
According to the Daily Finance report, a boom in 2009 brought about by stimulus spending has seen too much money being spent on unneeded factories that are now sitting idle or from building towns and cities that are vacant.
Analysts suggest the Chinese real estate sector could have a hard landing in 2010, and say that if this happens so could Chinas's growth overall, undermining hopes the country would lead the world out of its current economic problems.
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