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China 'panicking' in face of sluggish growth: Chanos

Short-seller Jim Chanos says China is "panicking" in the face of a stalling economy.

As the fast-growing economy now deals with a lending bubble, Chanos told CNBC's "Squawk Box" on Thursday his long-running bearish outlook is now coming to fruition. On Wednesday, the Chinese government vowed to cut taxes on small firms and said it would boost railway construction. Chanos said China has rolled out such "mini-stimulus" programs for years.

"One has to keep in mind, if you're a Western investor in stocks and bonds in China, you are investing in a scheme, not a market," Chanos said. "This is important. You are basically providing capital to them and you might not see any profits or dividends from them."

The country still houses massive stretches of unoccupied residential complexes, with three to six years of unsold supply left over outside of Beijing and Shanghai, Chanos said. Chinese growth figures don't account for sales, so the country's enviable growth rate includes construction projects left empty, Chanos said. China fueled its construction boom largely on credit.

"Anybody who thinks that can't collapse because of too much lending has not looked at economic history," Chanos said.

Read MoreLooming debt defaults mark turning point for China

Positions against China make up about 20 percent of his short-only portfolio, Chanos said.

The hedge fund manager has also bet against construction equipment maker Caterpillar, a move in line with his bearish outlook on China. The company was the "number one" beneficiary of an explosion in corporate spending on heavy equipment for mining and oil refining across the world, Chanos said. That spending, however, has dropped significantly in the past two years, he added.

"In everything that they do, there is pressure," Chanos said.

Read MoreJim Chanos slams Caterpillar

Chanos also discussed the hot-button issue of the week: high-frequency trading. He said the fractions of a penny his hedge funds might lose from high-speed trading don't feel "material."

"We know that they are there," the founder of Kynikos Associates said. "We know that they are extracting a slight tax. We turn our portfolio over very, very slowly, about once a year."

Chanos' comments come as the finance world debates the role high-frequency trading plays in the stock market, following assertions from author Michael Lewis that the markets have been "rigged" by the high-speed trades. Traders with high-speed cables and powerful software can make moves ahead of regular investors, Lewis contends.

Chanos said Lewis' reporting highlighted an important issue: transparency.

"Are people giving up information about clients that they shouldn't be giving up?" Chanos said. "That gets to the point, is there fraud upon the market?"

Chanos' Kynikos, the largest short-selling hedge fund, suffered during the stock market's record run last year. The fund fell 13.6 percent, according to The Wall Street Journal. During his interview Thursday on CNBC, Chanos disclosed long positions on Citigroup and Starbucks.

Read MoreShort-seller Chanos falls double digits in '13

—By CNBC's Jeff Morganteen. Reuters contributed to this report.

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