Saturday, December 11, 2010

Jim Chanos Chimes in with an Update on China

China Overbuilding to 'Hit a Wall': Chanos Includes Video.

"China will be the big story as we get into the new year."

The nature of the growth is the problem. Chanos believes China is more of a real estate economy than an export driven one, citing real estate as 60% of GDP compared to exports at 5% and consumption at 35% (a decline over the last ten years). He believes the 12-15 million units China constructed in 2010 are overhang now as sales in the last year and a half have been relatively flat. He also warns that with their very low margins, Chinese companies cannot tolerate any increase in costs, including wages, which need to rise to accommodate inflation. And many companies are going to be losing money if they aren't already. Many of the companies he has looked at have accounting issues.

The U.S. is in the best position relative to other trading partners given these threats.

On top of all that, most of the migrants from the countryside work in construction so as soon as that dwindles, these workers will go back to the country further exacerbating the overhang.

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