Jim Chanos, founder of hedge fund Kynikos Associates, is arguably the most well-known short-seller in the world, having predicted the high-profile demise of companies like Enron. Now, Chanos is setting his sights on China, the world’s second largest economy. In a CNBC interview, he makes a compelling case for why the country is in big trouble.
First, contrary to popular assumptions, China is a real estate-driven economy, not an export-driven one. He said real estate construction accounts for over 60 percent of the GDP while exports make up about only 5 percent of it. Moreover, this real estate construction isn’t done to meet actual demand from the market. Instead, they are propped up by distorted incentives and result in empty offices and residential buildings.
Chanos said China has constructed 12 to 15 million residential units in 2010. The United States, meanwhile, constructed only 2.5 million units at the height of the 2006 housing boom.