CHANOS: I AM NOT BEARISH ENOUGH ABOUT CHINA

“Lately, I have been taking a beating from some Chinese real estate developers including one very recently…These kinds of criticisms, these ad hominem criticisms are fine, but what people again don’t seem to be attacking are the facts. The property developer stocks that we’re short have been declining. This has been a good place to be short for the last 18 months. I guess we can rest on that.”

“Actually, our team just got back from China, my research team.”

“The signs of overcapacity were much even greater than their last visit, which was late last year. Increasingly, the executives that they met with were sounding a little bit more uncomfortable about the current situation.”

“If you look at the balance sheet of the developers that claim they are pre-selling…If you look at the balance sheets of the developers, you’d be hard-pressed to see how healthy they were because they are all loaded up with land, just as our developers were at the top of our market. So for every yuan that they are earning presale, they are plowing it back and then some into new land development. They are drinking the Kool-Aid, so to speak.”

“We’ve maintained our pretty much dramatic overweight in our Chinese shorts, and we will leave it at that.”

“What we are seeing now is more cracks on the façade and what they observed, almost quite literally. The buildings that were only two to three years old were already beginning to show some signs of wear and tear…The quality of all this fixed asset construction is becoming sort of suspect.”

“I think this is actually one of the reasons contributing to the bubble in that it is a double edged bet that could turn into a double-edged sword. Investors are counting not only on asset appreciation of fixed assets in China, but they’re counting on the yuan being revalued upward. If it ever became apparent that might go the other way, you could see a real scramble to get out of these assets in China.”

“We have a hedge fund. We have a small, long short opportunity fund, which is a fraction of the size of our total holdings, and in that fund, we hedge off everything. We were short a bunch of developers, individual developers. We hedged it off on the long side with an ETF. We are not bullish. We’re just hedging in our hedge fund.”

“In our hedge fund, which is a small part of our assets, a couple hundred million, less than 5% of our assets, we have longs and shorts. To use the China example, not only are we hedging with the ETFs on the long side, but we own the debt of some of the developers against short positions in their stocks…Increasingly, the real estate developers can’t get bank loans for their project financing in China. They’re now going into the Hong Kong market to raise money in the bond market at very, very high rates, as high as 15%, 20%.”