“The problem is that consumption as a percentage of Chinese economy has declined in the last 10 years, from 40 to 35 percent. It’s all real estate,” he said. After the US, China has the world's second largest economy.
Chanos said that steel, iron ore, cement and other materials needed for construction will be "under pressure."
China has built new cities that are now essentially empty, he added. Despite the overbuilding, said Chanos, construction continues at a good clip, with 12 million to 15 million residential units this year. The units, priced similar to those for US residents, are intended for Chinese who earn about $3,500 annually and are in the bottom 20 percent of wage earners. Ironically, many of the Chinese who've moved to cities from the country are construction workers, he noted.
“When construction is 60 percent of your economy, and you are building lots of things that people don’t need, the state may let this get out of control,” he said. “It’s hard to manage this type of bubble.”
Chanos predicted that America would fare better, should the China bubble burst, because the US doesn’t export as heavily to China as do Europe, other countries in Asia and Latin America.