Seeking Alpha

China is on "a treadmill to hell," whose property market is a bubble that may burst by as early...

China is on "a treadmill to hell," whose property market is a bubble that may burst by as early as this year, Jim Chanos says. China needs to keep up the pace of property investment because up to 60% of its GDP relies on construction, he says. “They can’t afford to get off this heroin of property development. It is the only thing keeping the economic growth numbers growing."
Comments (7)
  • Chimin Sang
    , contributor
    Comments (293) | Send Message
     
    There is a bubble, but it will not burst any time soon.
    8 Apr 2010, 09:45 AM Reply Like
  • Jake Huneycutt
    , contributor
    Comments (1381) | Send Message
     
    I agree with Chanos almost in full, and believe his timetable is probably near-correct, as well. China's growth in M2 money supply is around 25%, which is a very worrying figure, as well. It suggests there is a massive bubble there.

     

    This could be a repeat of mid-'08 in the US, where the market had started to cool off some, but we saw a huge run in commodities and high inflation. Eventually, that bubble crashed rather violently, with oil falling all the way to $35/barrel and nearly every commodity across the board getting hit severely.

     

    I think, one way or another, China is going to have major issues soon. My bigger question is how will this impact the US? If Chanos is right (and I think he is), China is going to try to stabilize the economy and they are going to need a hell of a lot of cash to do that. Does that mean they are going to have to dump their US debt and dollar holdings?

     

    That should theoretically weaken the dollar and cause interest rates to rise here in the US; but at the same time, there's still significant deflation in the RE market here. So it's not completely clear to me how major of an impact it would have in the US.
    8 Apr 2010, 09:52 AM Reply Like
  • Anwar Bhamla
    , contributor
    Comments (98) | Send Message
     
    And here I have been under the impression that the Chinese economy was an export economy boosted by artificially low value for the yuan.

     

    If I had the wrong impression, then how did China accumulate those huge foreign reserves?

     

    I suspect that Chanos is right. Just he ignores/underestimates the role exports play in China's economy.
    8 Apr 2010, 11:01 AM Reply Like
  • vtorch
    , contributor
    Comments (304) | Send Message
     
    I don't quite understand how exports is directly linked to real estate prices. Nevertheless, I agree that China is an export economy. The lack of social safety nets in China would see to that domestic consumption will not replace exports as the major driver of the economy in the foreseeable future. If exports remained depressed for a prolonged period of time, China is screwed. But fear not, because the world cannot live without Chinese made products - just check for "Made in China" signs the next time you purchase anything - clothes, toothbrush, etc.
    8 Apr 2010, 12:47 PM Reply Like
  • Trading Nymph
    , contributor
    Comments (8) | Send Message
     
    Actually, Chanos is wrong in part....even though I have been writing about the China bubble for sooooo long at my Stockpickr Trading Diary....China also has Automobile Industry that has become a big part of their GDP....they are trying to become a global player in the field...problem is that it has been a cash for clunkers program and china limiting the driving days in major city requires people to buy more then one car just to drive to work each day....
    8 Apr 2010, 11:04 AM Reply Like
  • vtorch
    , contributor
    Comments (304) | Send Message
     
    China real estate is overvalued. There are, however, some points to ponder. First of all, I suspect that a significant portion of the real estate purchases in China is made with cash, which helps to partially explain why a curbing in mortgage lending is not doing a lot to cool prices. I further suspect that a lot of the cash used to purchase real estate is done using money borrowed from the banks in the form of company loans. Think of the following scenario: an entrepreneur owns a fairly profitable business. Due to the increased lending by the banks, he is persuaded by the bank manager to take a loan (e.g., working capital loan). Since his company really doesn't need the cash, he withdraws his capital, and uses it to fund real estate purchase. Secondly, culturally, it is always better to own a place than to rent a place. In Chinese societies like China, Hong Kong, Taiwan and Singapore, owning real estate is almost a necessity. Thirdly, the emergence of the middle class in China has created significant demand for decent housing, as the Chinese are no longer satisfied with living in slumps (if you go to second tier cities, there are still many people living in apartments that don't have their own bathrooms and/or kitchen - so go figure).
    8 Apr 2010, 12:43 PM Reply Like
  • Taylor Gray
    , contributor
    Comments (32) | Send Message
     
    The US had the dot com bubble - the NASD rose from 1,018 in 1996 to 5,133 in 2000 and rolled over to 1,108 in 2002. Investors were burned by holding stock market paper. There emerged a great desire to put money into something tangible - housing - and the rest is history.

     

    China had a stock bubble - the SSEC (Shanghai exchange) rose from 1,223 in 2005 to 6,124 in 2007 and rolled over to 1,665 in 2008. Investors were burned by holding stock market paper. There emerged a great desire to put money into something tangible - housing - will the rest be history?
    21 Sep 2010, 01:48 PM Reply Like
DJIA (DIA) S&P 500 (SPY)
ETF Hub
ETF Screener: Search and filter by asset class, strategy, theme, performance, yield, and much more
ETF Performance: View ETF performance across key asset classes and investing themes
ETF Investing Guide: Learn how to build and manage a well-diversified, low cost ETF portfolio
ETF Selector: An explanation of how to select and use ETFs