Monetary tightening in China threatens to pop the $1.7 trillion (£1.07 trillion) credit bubble in local government finance and expose the country's simmering "subprime" crisis, according to the Communist Party's economic guru.
China may have had a gigantic bubble; some sectors of the economy will collapse: Marc Faber
Fund manager Jim Chanos spoke to Bloomberg TV’s Carol Massar about China's economy, debt and real estate market.
Chanos said that growth in China may be zero and that China has “European kind of numbers” when it comes to debt.
On how a Chinese property bubble will play out:
"I think that will be the surprise going into this year, and into 2012 - that it is not so strong. The property market is hitting the wall right now and things are decelerating. The CEO of Komatsu said last week that he is having trouble getting paid for his excavator sales in China. Developers are being squeezed. They're turning to the black market for lending, this shadow banking system that is growing by leaps and bounds like everything in China.
"Regulators over there are really trying to get their hands around the problem. In the meantime, local governments have every incentive to just keep the game going. So they will continue with these projects, continuing to borrow as the central government tries to rein it in."
Chanos on his long and short positions:
"We are short Chinese banks, the property developers, commodity companies that sell into China, anything related to property there is still a short."
Thanks to this rampant use of credit, at outrageous levels when compared with personal incomes, 22:1 in some coastal regions. Investors should note that this ratio is far worse than anything the American property market experienced before its bubble burst suggesting that rough times could still be ahead for China and the likely overbought real estate market.
China’s biggest builder in the eastern province of Zhejiang, Greentown, appears to be in trouble and may provoke the start of contagion in Chinese property.
THE FED AND THE ECB ARE DESPERATE TO SOLVE THEIR OWN PROBLEMS BEFORE THE SHIT HITS THE FANS IN CHINA.
SIX MONTHS - THAT ALL THEY HAVE.