China Warns of Bankruptcies, But Buffett Says Not to Worry
If you ask chief financial officers in China, they will probably tell you that there is a real estate bubble in the country. A survey of CFOs from around the world conducted by the Fuqua School of Business at Duke University found that 90 percent — 90 percent — of them believe there is a real estate bubble in China. Moreover, the CFOs believe there is about a 30 percent chance that the bubble will pop this year, and 75 percent of them believe that the deflation would “pose a medium or significant problem for China’s economy.”
Fuqua professor Campbell R. Harvey, founding director of the survey, doesn’t restrict the fallout to just China. “If the real estate bubble were to burst in the world’s second largest economy — China — the reverberations across the globe would be massive,” he said in a press release about the survey.
This idea — that there’s a massive real estate bubble ready to blow in China — has been kicking around for a couple of years. Infamous China bear Jim Chanos, president and founder of the hedge fun Kynikos Associates, has been warning of the burst since at least 2009 when the United States was waste-deep in the wreckage of its own collapsed housing bubble (for the record, just 16 percent of CFOs believe there is another housing bubble in the U.S., according to the Fuqua survey.)
The veracity of the bubble thesis is hard to measure. On the one hand, if the past decade has taught us anything it’s that under the right circumstances, any (or every) market is a ticking time bomb. This should, in theory, make investors more resistant to disaster myopia — but on the other hand, the third for yield is hard to quench.