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Barry Ritholtz posted the video from Jim Chanos' appearance on Bloomberg TV. The big deal might be that after sending his research team to China he said he may not be bearish enough on China. Ruling out that the comment was not more about seeing only what they wanted to see it should be obvious that China is, at the very least, a complicated investment destination.

In the interview he only talked about two segments of China; real estate and reverse mergers (Longtop (NYSE:LFT) is the latest one of these to blow up, I guess). We know there are a lot of questions about how many apartments have been built, how many are empty and how many will remain empty.

I don't know if bubble is the right word and, frankly, I don't care. It is easy to envision that the apartment capacity is far ahead of the rural to urban migration, exceeds the need of the people who own two or three of them, that there could be a problem at some point with over leverage (not on the properties as the down payments are huge, but in terms of carrying two or three mortgages), that the banks will mismanage their loan portfolios or that the developers will over leverage themselves. This case is simply too easy to make. That does not mean the market must collapse just that it doesn't take too much heavy lifting for an adverse scenario to develop.

As for the reverse mergers, in a way these aren't even investing in China. It is China, of course, but these companies find shell companies here (where did all these shell companies even come from?), merge into them, take a Chinese name and list on a US market. I've heard that one dynamic with these is that the penalty for this sort of scam in China (when it is a scam) is death but not so in the US so they are willing to try it in the US but not at home.

The best course of action with the reverse mergers is simply to avoid them. Chanos said this in the video and I have been saying this for ages.

I've not heard Chanos ever talk about energy, materials or industrial companies that are real companies in China that have been around for a while that play into the improving quality of life, the ascendancy of a middle class and the real volume of rural to urban migration. I think these are the best places to look.

China is a major driver of the global economy. The population is massive and the country is going through what appears to be a major transformation, which I believe is a net positive as a long term investment destination. On the flip side, if the transformation is major then it is only logical that some aspects will be badly mishandled and it is these segments that should be avoided. The country also has a bit of a demographic problem, such that the one child rule may be changed. If that happens it would cause another distortion which, at this point, I am not sure if it would be a positive or negative factor.

Our exposure is quite modest by virtue of China's weight in the Market Vectors Coal ETF (NYSEARCA:KOL) and the iShares Emerging Market Infrastructure Fund (NASDAQ:EMIF). If the toll roads were more easily (read cheaply) traded I would not hesitate on one in particular right now.