Editor’s note: This article was first published in November 2013; Jim Chanos’s short position on China and his forecast that its economy would collapse “sooner rather than later” reflect his views at that time.
Jim Chanos, founder of Kynikos Associates, a hedge fund that specialises in bearish positions, has always loved short selling. You could say he spends most of his time watching, studying and analysing in minute detail why a company or an economy is going to sink or lose its competitiveness, sending its share price down.
He became very famous when he bet against Enron at a time when nobody else did. These days, Jim Chanos has set his sights on shorting the Chinese economy.
Here are some of the arguments and ideas behind Chanos’s decision to bet a significant part of his fund’s capital on a fall in the Chinese economy.
(Read: 8 tips for being a rich and happy short seller, by Jim Chanos.)
Jim Chanos has been widely criticised for shorting China without ever having visited the country. His answer is that when he bet against Enron, he had not worked at that company either.
He also says that when the leaders of a communist country are themselves billionaires, something is not quite right.
Chanos says he has been betting against China for some time and that now, more than ever, he is seeing more critics come round to the idea of not trusting the data that comes out of the country.
In his view, the last planned economy he had seen growing like this was the former Soviet Union, and what eventually happened there was a massive misallocation of resources. China, he says, is heading the same way.
The Chinese banking system is built on quicksand, as Chanos said on Bloomberg.
In short, this legendary investor thinks that sooner or later, and probably sooner rather than later, the Chinese economy will end up collapsing.
See also: China may be ignoring the signs of a property bubble
Featured image: N509FZ, CC BY-SA 4.0, via Wikimedia Commons.
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