Chinese Bubble 'Fit to Burst'

      January 11, 2010 12:10

      China's economy is expected to grow almost 10 percent this year in spite of the worldwide economic slump. Global capital is flocking to China in anticipation, boosting expectations of the potential growth of the Chinese equity and real estate markets. But skeptics are betting that the Chinese bubble will burst and bring an abrupt end to the boom. Some hedge funds have already begun taking short positions on "China Inc.," the New York Times reported on Thursday.

      James Chanos, "America's pre-eminent short-seller" who built one of the largest fortunes on Wall Street by foreseeing the collapse of Enron and other highflying companies, has been researching short-selling strategies on Chinese stocks since last summer. China does not allow short-selling on its stock market and strictly limits foreign investment. Chanos said he is "searching for other ways to make his bets, including focusing on construction- and infrastructure-related companies that sell cement, coal, steel and iron ore."

      The short-selling guru rose to prominence by predicting the demise not only of Enron, but also of Tyco International and the Boston Market restaurant chain. In an interview on CNBC last month, Chanos said China looks like "Dubai times 1,000 -- or worse." He claimed that China's hyper-stimulated economy is heading toward a collapse. "Bubbles are best identified by credit excesses, not valuation excesses. And there's no bigger credit excess than in China," he said.

      The Economist magazine also warned of a bubble in emerging markets like China. It reported that global stock prices rose 70 percent compared to March of last year. Government-led economic stimulus measures and soaring asset prices, which lead to low interest rates and massive fiscal deficits, cannot continue forever, it said.

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