China Bubble Going to Pop?

CNBC says:

China: Powering the Global Economy, or the Next Bubble to Burst?

In a recent report, Chanos’ firm has been very pessimistic about China, and his firm has even gone as far as to speculate that China could be “Dubai times 1000, or worse.”

Chanos points out a stark irony that investors who decry government involvement in US companies are bullish on the Chinese markets, despite the fact that the country’s government can “fine tune” the economy to their liking. He is also skeptical of the country’s GDP numbers, calling them “massively inflated by under-depreciating a very, very, very shaky capital asset base.” 

He points out that “bubbles are best identified by credit excesses, not valuations… there is no bigger credit excess right now than China.” But how do you play this? 

Chanos says that although you can’t short China, the short plays are in the first derivative industries: companies which support the raw and imported materials for growth (such as copper, cement and iron ore producers). He also suggests looking into short possibilities in the Hong Kong exchange. 

Chanos himself is actively shorting this area, and is “looking for plays on the China investment pool, which we think will burst at some point… Demand in China is over-inflated, that is clear.”

The Epoch Times says: 

According to recent statistics released by Beijing, China’s GDP is likely to grow about 8 percent this year. Why? Even until just three months ago, few economists thought this would be possible. 

China’s GDP growth rates declined from around 13 percent in 2007 to merely 6.1 percent in the first quarter of 2009. Exports, the driving force of China’s growth, have declined for more than 20 percent for almost a year. 

Apparently the growth rate picked up in the third quarter. China’s stimulus package of $586 billion in the last year is estimated to have pushed the economy through investment to grow by about 2 percentage points in 2009, more than it otherwise would have grown. 

Statistics show that China’s economy picked up in just the last two to three months. However, the economy as a whole is still unstable. Obviously such growth costs a lot. Namely, China spent 4 trillion yuan in capital investment last year. China’s money supply had a huge jump—up 30 percent year-over-year in the first half of this year. 

Moreover, new bank loans of 7,370 billion yuan (US$1,079 billion) were issued in the first half of the year, an increase of nearly 200 percent over the same period last year. All these measures have been used to prop up the growth rates.