3 Arguments for China’s Looming Economic Crash

November 10, 2009 06:00 PM
Billionaire hedge fund investor Jim Chanos, the famous Enron short seller, is in the camp of professionals who view China as headed toward a crash. The China bears suspect that the economy is not as healthy as portrayed, and that many of its components that are actually stronger have become overheated. Basically, they believe that the “entire system is teetering toward collapse.”

Here are three factors that suggest serious problems in China…

* First, they claim the huge $900 billion spent by the government on economic stimulus to support the $4.3 trillion economy is underperforming.

* Second, China could be cooking its books. There are notable inconsistencies in official statistics. They highlight that car sales are rising dramatically but gasoline consumption is flat, one of many unexplained economic phenomena.

* Third, the Chinese potentially face problems with overcapacity. For example, China uses more cement than the rest of the entire world combined, and it increased production by an amount greater than US, India, and Japan’s combined consumption. It’s one example, but the concern is that China will not be able to find a market for many of the goods it is producing in massive amounts.

A collapse of the Chinese economy would send shockwaves worldwide, certainly to include the US. A crippled China could find itself with a destabilized government and would be less able to support purchases of US debt… both are serious concerns. To read more of the full story visit Politico, and view its coverage of China headed toward collapse.

3 Arguments for China’s Looming Economic Crash originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.