WASHINGTON – A few years ago, Jim Chanos of Kynicos Associates made news because he had the temerity to call a spade a spade by telling the world that China’s construction-driven economic growth was in fact a big bubble.
A bubble economy
Chanos argument was that China’s construction frenzy was not led by real demand. Soon enough this enormous property boom driven by speculation, and by the political need to show consistent GDP growth, would cause huge problems.
And he argued that the crunch would be felt first among the international companies that supply the raw materials that feed the Chinese construction industry. He argued that the Australians, the Brazilians and other commodities exporters would get hit first.
At the time Chanos looked like a really odd character who really did not understand China. China was doing very well, fueling the almost universal expectation that its super successful “New Economic Growth Model” would allow it to surpass America, thereby affirming that there is indeed something better than capitalism.
Now we see
Well, fast forward to today, and it is quite a different story. Now Chanos looks like a prophet.
Indeed, with all the bad news about China’s economic slow down, smaller exports, lower industrial production, huge over capacity funded by mountains of debt, the Shanghai Stock Exchange implosion, and –yes– the real estate disaster, it is hard to challenge his negative forecasts.
When Chanos speaks, now people listen to him. So, how bad is the Chinese economy? “It’s worse than you think”, replied Chanos in a CNBC interview. “Whatever you might think, it’s worse”.
Got that? It is bad beyond imagination. Well, this assessment is certainly not very detailed. But you get the idea. Underneath a relatively calm, in fact almost airbrushed, surface, there is a badly mismanaged country.
But how is this possible? We thought that the Chinese meritocracy only promoted the super smart. We were told that China is run by carefully trained technocrats.
Well, may be not. “People are beginning to realize the Chinese government is not omnipotent and omniscient,” Chanos said to CNBC. “In fact, like many of us, sometimes they don’t have a clue.”
There you go: “Clueless China”.