For weeks now, James Chanos has been loudly proclaiming the imminent collapse of China. “If you thought Dubai was bad a couple of years ago, and we did, it has nothing on China,” he says, adding that China is Dubai times a thousand.
The hedge fund manager, who made his name calling the demise of Enron, says the wasteful investments in empty office complexes and shopping malls and pointless infrastructure will pop China’s bubble “sooner rather than later”. His bearish view was cemented last year when he toured China and observed the endless follies being thrown up in the wake of the financial crisis.
But funnily enough, he’s now reining back his aggressive stance. At a Reuters Private Equity and Hedge Funds Summit in New York, Chanos said his short bets could take “three to four years to play out”.
He didn’t say who his fund, Kynikos, is shorting, but it sounds like they are targeting companies outside China that supply the raw materials for the boom. When asked if he was looking at Rio Tinto and BHP Billiton, he said: “you’re heading down the right track”.
Why though, if he is so confident, isn’t he looking to short Chinese companies? Chanos argues that it is difficult to get much toehold in the Chinese market, but there are a wealth of large Chinese firms who would be hit badly by a property collapse, listed in Hong Kong. If he’s convinced that China faces a worse fate than Dubai, why not take aim at Country Garden or Vanke, or even the banks that will be left horrifically exposed by such an event?