Chris Thomas

The Inevitable Collapse of China's Banks

Lei Yang:

While many in the American press wrongly dismiss the Chinese government as a handful of corrupt Communists, it would be disingenious to ignore the massive structural problems facing the Chinese economy and society.

China has come far from Mao's day. It government is starting to resemble the Middle Kingdom's meritocratic roots - the loyal are slowly being replaced by the talented and beaurocrats are turning into technocrats. Regardless of the current state of the CCP, one must applaud this trend.

At the same time, the CCP is a bloated, corrupt organization that has a heavy hand in the Chinese economy. The author of this article is spot on - the country's financial institutions are a wasteland of no performing loans and constant mismangement. If you ignore this basic fact, you are being blinded by the China growth story and as an investor you are setting yourself up for disaster. Whether you like it or not, it's a risk. And you have to keep an open mind.

To the author: what is your opinion of having a short position on FXI? It seems obvious to me that there is a massive speculative bubble in mainland China's equities, but I have been tentitive to short the FXI because it is made up mostly of Chinese blue chips. The overvalued crap that is prime to short is all in Shanghai or Shenzhen, but you bring up a good point - that the FXI is 41% composed of financial stocks. Thoughts?