Chinese President Xi Jinping has put ideology over the nation’s economy, raising the risk to the rest of the world, according to famed short seller Jim Chanos.
(Bloomberg) — Chinese President Xi Jinping has put ideology over the nation’s economy, raising the risk to the rest of the world, according to famed short seller Jim Chanos.
Xi, who came to power more than a decade ago, marks a change from previous leadership that prioritized growth for the world’s second-largest economy, the president of Chanos & Co. said Thursday in an interview on Bloomberg Television.
A “more muscular China” that focus on areas such as national defense “raises the global risk level of what happens if the economic model falters,” he said.
China’s debt-fueled growth model has run its course and has to shift to a more consumption-based economy, Chanos said.
While the country won’t be left in “smoking ruins,” the “speed bump” for this transition may be more severe than investors realize, he said.
The House Select Committee on the Chinese Communist Party held a hearing in New York this week to draw attention to threats that lawmakers say China poses to the financial system. Chanos had been scheduled to appear but canceled due to travel problems.
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In a prepared statement for the hearing, the hedge fund veteran said he first became aware of China’s debt problem in late 2009 when Beijing unleashed massive stimulus to cope with the global financial crisis. His analyst alerted him that the housing construction boom in China was enough to accommodate every single person in the country.
“It was a ‘light bulb turning on’ moment for me, as I realized that the 30 billion square feet of office space under development represented a 5×5 square foot cubicle for every man, woman, and child in China!” he wrote in the statement.
In Thursday’s Bloomberg interview, Chanos said the Chinese market has been “a terrible place” for investors over the past decade.
The MSCI China Index returned about 2% annually since 2010, compared with 13% for the S&P 500, according to data compiled by Bloomberg.
“Broadly speaking, you are well advised to avoid China for the last decade,” Chanos said.
–With assistance from Simone Foxman.
(Add Chanos’s prepared statement to a House hearing in 7th paragraph.)
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