Taps Coogan – September 24th, 2021

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Legendary short seller and founder of Kynikos Associates, Jim Chanos, recently spoke with CNBC about Evergande. One of the first investing heavyweights to come out bearish on China, Mr. Chanos has warned about the excesses of China’s real-estate model for years. While he doesn’t see systemic risk spreading to western financial institutions, he sees China’s economic model as increasingly reliant on real-estate and ‘fragile.’

Some excerpts from Jim Chanos:

“Our call on China really went back to 2009, the beginning on 2010, and really it was based on what we are now seeing which is questioning the economic model of the People’s Republic of China and all the effects it had because it is an economic model that has still to this day relied on real-estate and real-estate investments to drive growth and it went pretty much from the ridiculous to the sublime of the past 12 years and you now have China having residential property equaling 20% of GDP every year, all real-estate activities approaching 30% of GDP every year. These are just off the charts kinds of numbers and they’ve gotten worse under President Xi, not better.”

“I think what Evergrande is telling us, and I am going to disappoint some of your commentators, is we don’t think it’s systemic with Western financial markets. We do think there are two things you can draw from the Evergrande episode. Number one, it highlights the fragility of the Chinese economic model which is still highly reliant on putting up apartment buildings. They put up 20 million a year, year in and year out. Number two (is) their response to it, how in Xi’s China where we’re are seeing a definite change in tone… and the way the government is treating business, business leaders, Western investors. How will they handle the bailout that everybody still thinks is coming in some shape or form? Will western bond holders be bailed out? Will it only go to property owners who are owed apartments that are not yet constructed by Evergrande? Will banks take a haircut? We don’t know yet and how China handles the inevitable restructuring of this massive company will tell us a lot about Xi’s priorities in working out the trillions of bad debt are in this economy. “

There is more to the interview, so enjoy it above.