China's a 'Roach Motel'; Don't Trust the Numbers: Chanos

China's economy continues to deteriorate despite the government's efforts to paper over the troubles, making the country's stocks ripe for short-selling, hedge fund titan Jim Chanos told CNBC.

James S. Chanos
Scott J. Ferrell | Congressional Quarterly | Getty Images
James S. Chanos

The head of Kynikos Associates may have been the market's most notorious Chinabear over the past few years, and he said his position has not changed.

In fact, he warned that investors should not trust the data coming out of the government as well as corporations in the world's second-largest economy, charging that he "would take issue with almost any corporate accounting in China."

"It's destined to suck Western capital into the country and have it never go out," Chanos said during a "Squawk Box" interview. "You're almost in a classic emerging market roach motel, except it's a really big one in that it's very difficult to earn adequate returns for capital and get your capital back as a Western investor."

On its face, China's gross domestic productgrowth is far from a recession level though the rate of growth has slowed.

The country's $7.6 trillion economy grew at a 7.6 percent rate in the second quarter, which would be good for most countries but relatively weak for China. Citigroup economists said Wednesday that the same pace likely will continue through 2013.

But Chanos charges that the underlying drivers in the economy are much weaker.

The most recent trade numbers, for instance, show that the August trade surplus swelled to $26.7 billion as imports dropped, reflecting a demand slowdown internally.

"China's growth is slowing pretty quickly. That's stated GDP — you're never going to see negative GDP from China year-over-year, I don't think, not under this regime," he said. "But look at corporate profits, look what's happening on the ground. Corporate profits are imploding over there."

Chanos said his "roach motel" remark was directed specifically at the country's "H shares" market — companies based in the mainland but whose shares also trade on the Hong Kong exchange.

"Take a look at the Chinese stock market. It's gone nowhere despite having one of the highest rates of growth of any emerging market, any market," he said. "GDP growth has been 9, 10 percent for 10 years and you've made no money in the Chinese stock market."