Jim Chanos: China’s Appearances May Be Deceiving
Jim Chanos, the founder of Kynikos Associates, had some words of warning to stern believers in the booming Chinese economy.
Chanos had many comments on how the Chinese economy is not nearly as strong as it would seem. Though economic indicators released on a worldwide stage have generally been positive, and in line with a recovery that is just now building momentum, Chanos presents his own set of data and observations that tell a different story. Moreover, his concerns have little to do with the tapering of American quantitative easing, which has been a bugbear for emerging economies ever since it was projected earlier this summer.
Chanos first points to the Chinese credit system, which has ballooned to incredible levels over the past few years. Levels of new debt has risen between 30 and 40 percent per year, according to his calculations. If one assumes that China’s economic growth will fall in line with the government goal of 7.5 percent, then that still means that debt is outpacing growth by a factor of 25 percent, meaning that it will double once every three years compared to growth. This is especially problematic for certain municipalities, who have gotten around rules preventing borrowing by creating companies to finance construction projects.