Yuan May Depreciate, Not Appreciate: Chanos
Web Producer, CNBC.com
China's yuan may actually depreciate instead of strengthen as a speculative bubble in Chinese real estate bursts, according to Jim Chanos, a noted China bear and founder of the hedge fund Kynikos Associates.
The Chinese currency rose for the ninth straight day against the dollarafter President Barack Obama criticized the country for not doing enough to strengthen it.
"We think there's a big speculative bubble that's going on over there and it's having knock-on effects on certain things like commodities or materials," Chanos told CNBC Tuesday. "We're short the property developers, we're also short basic materials companies."
Chinese property stocks are flat this year, as investors hope the tightening effects have not had the desired effect and the growth in the real estate sector will continue at the same pace, he said.
"People are counting on the bubble being reinflated," Chanos said, but added that he thinks the authorities are "pretty serious about tightening."
Chinese net exports are now in the mid-single digits and do not contribute as much to the country's economic growth as they did before, according to Chanos.
"My concern would be the yuan gets depreciated not appreciated," he said.
China will have to work much harder to keep its rate of growth for gross domestic product and investors cannot trust completely the data advanced by authorities, Chanos said.
"I think that one has to take many, many large grains of salt when looking at China because you see figures that they want you to see," he said.
"I think that they're going to run faster and faster and faster to keep these GDP numbers and that's the problem. In China it's all about the numbers, about saving face, and that's the problem," Chanos added.
The fundamental difference with Western economies is that "it's not a free market," he said. "The vast majority of economic activities are done through state-owned enterprises and state-owned or state-controlled banks."
With its tightening measures, China is trying to engineer a soft landing but economic history shows that usually things "overshoot as much on the downside as they do on the upside," Chanos said.