Jim Chanos: China's Real Estate Bubble Is Unprecedented
The bubble in China's real estate is unprecedented and companies exporting for the country's construction sector should be watched carefully, James Chanos, president and founder of Kynikos Associates, told CNBC Monday.
"We are not calling for an impending crash of China or of the Shanghai stock market, but in particular the bubble that has been blown up in real estate both commercial and residential as well as other forms of fixed asset investment in china is unprecedented," Chanos said.
"I do see all of the signs of a credit induced real estate bubble that i think is going to be a doozy," he added.
He said there are about 30 billion square feet of space in construction only in the commercial property sector.
If the bubble were to burst, it would hurt the building materials sectors and the commodity plays in the Western world, the sectors where demand depends on the Chinese construction market, according to Chanos.
"Looking at companies, I'd be very leery of companies who are exporting materials to China to build up this construction bubble," he added.
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Fixed investment is forecast to reach 60 percent of Chinese gross domestic product this year, up from around 50 percent, he said.
After World War II, the Soviet Union, Germany and Japan grew very rapidly using fixed investment, but only Germany and Japan managed to use inputs more efficiently, Chanos explained.
"In China, what we've seen is more and more fixed investment is needed for a dollar of GDP so they're getting less efficient, not more," he said.
A Chinese government researched said Monday that the country's GDP was likely to grow about 9.5 percent in 2010, largely due to strong domestic consumption and corporate investment.
"In the West, GDP growth is the residual of the free market… In China it is quite a bit of a different thing, very similar to the good old Soviet Union; GDP is a planning tool and we start with the GDP target and then figure out how it is we are going to get there," Chanos said.