Investor Jim Chanos sees China as a 'terrible place' for U.S. investors, reveals his shorts tied to China

Published Mon, Sep 20 20211:01 PM EDTUpdated Mon, Sep 20 20215:14 PM EDT

Kevin Stankiewicz @in/kevin-stankiewicz-b5593466 @kevin_stank

Short seller Jim Chanos told CNBC on Monday he believes it's a mistake to go long Chinese stocks, while doubling down on his concerns about the world's second-largest economy. In an interview on "Halftime Report," the Kynikos Associates founder and managing partner pointed to the performance of the iShares China Large-Cap ETF , which trades under the ticker symbol FXI, since late 2009 and early 2010 when it was in the low $40s. "It's the only major market, as I keep pointing out, for the past 12 years that's gone down and over that time frame the Chinese economy has more than doubled. I mean, this has been a terrible place to keep your money as a Western investor and I think it will continue to be," Chanos said. "Shareholders and creditors are just not treated well in the Chinese economic model, and I think that will continue." Chanos' comments Monday came as investors around the world dumped stocks and risk assets on concerns that the struggles of debt-laden Chinese property giant Evergrande Group , which is on the brink of collapse , could become as a financial contagion beyond China. Chanos has warned for more than a decade about a bubble in the Chinese real estate market. He reiterated his concerns about the importance of building to China's economic growth. Chanos said he does not have a bet against Evergrande, but is short "a couple of the larger Chinese financial institutions with what we think are pretty bad loan books." He added, "We also short a couple of the cross-boarder giant banks that trade in London with very large Hong Kong and China property exposure." "All in all, our China exposure is probably ... up from where it was a year ago. It's well below where the highs were back in 2011 and '15," said Chanos, who also is short Wynn Resorts due to the U.S. casino operators' presence in Asian gambling hotspot Macao , a Chinese special administrative region. Outlook on Evergrande The ongoing woes of Evergrande have set off concerns about spillover risks to financial systems in other parts of the world. It is one factor weighing on Wall Street, as the Dow Jones Industrial Average sank 614 points, or 1.8%, on Monday . At one point in the session, the Dow was down 971 points. For his part, Chanos said he does not think Evergrande potentially defaulting on its debts is "systemic to the Western financial markets." However, he said it's an important situation for two primary reasons. The first is it underscores the "fragility of the Chinese economic model, which is still heavily reliant on putting up apartment buildings," Chanos said. "They put up 20 million a year, year in and year out." The second is that the situation offers a high-profile test of the communist Chinese government under the leadership of President Xi Jinping , Chanos said. "Their response to it, and how in Xi's China, where we are seeing a different change in tone … in the way that the government is treating business, business leaders, Western investors -- how will they handle a bailout that everybody still thinks is coming in some way, shape or form?" Chanos said. "Will Western bondholders be bailed out? Will it only go to property owners who are owed apartments that are not yet constructed by Evergrande? Will banks take a haircut? We don't know yet, and how China handles the inevitable restructuring of this massive company will tell us a lot about Xi's priorities in working out just the trillions in bad debt that are in this economy."

James Chanos and Leon Cooperman at the 2019 Delivering Alpa conference in New York on Sept. 19. 2019.

Adam Jeffery | CNBC

Short seller Jim Chanos told CNBC on Monday he believes it's a mistake to go long Chinese stocks, while doubling down on his concerns about the world's second-largest economy.