Jim Chanos has never visited my friend’s neighborhood, but he would love it. It is the apotheosis of everything he says is wrong with the Chinese real estate market, which more than a year ago, the influential short-seller famously outlined.
In case you needed a refresher, he summarizes in the opening of his talk: “There are classic pockets of overheating and overindulgence. The amount of overcapacity now being put in various sectors of the Chinese economy is beginning to worry people and lead to possibly heating up of inflation and/or future deflationary effects in specific industries. I have without a modicum of doubt there’s a property bubble going on in China right now.”
Like many other parts of Shanghai, the majority of the the storefronts in this ‘hood are real estate agencies, each crowded with salespeople. Additionally, there are three massive, nearly-empty shopping centers within a few blocks of each other, where established franchises have come and gone and promising new shops have closed. And soon, they will open yet another shopping center.
Recently, I spoke with a friend involved in residential real estate, who said the market is “very, very bad. Nothing sells and when you do make a sale there’s no profit.”
While this example is illustrative of what Chanos says, it’s certainly not conclusive, and there are many China-bulls who reject his argument and a few Chinese graduates students who heckle him.
However, it seems that Chanos’ opinon is becoming increasingly mainstream, especially as cheap money and inflation flowing from the real estate sector flood the rest of the economy (watch those food prices!). Of course, economic forcasts depend much on the term under consideration, and so it should be noted that in his original speech, Chanos said he expected the Chinese real estate bubble to burst in late 2010 or early 2011, which would be — right now! Although he has since stepped-back from this specific timing, considering that construction accounts for “60-plus percent of GDP,” if he is correct, it will have very far-reaching consequences.
Here’s Chanos chatting with the clowns at CNBC on December 10th.