Chanos: Chinese Economy 'Much More Volatile’

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Sept. 17 (Bloomberg) –- Kynikos Associates President and Founder Jim Chanos discusses the continued push for investment spending in China. He speaks with Erik Schatzker and Stephanie Ruhle on Bloomberg Television’s “Market Makers.” (Source: Bloomberg)

You were explaining you are bearish on chinese banks.

I want to get down to the meat and potatoes of what everyone is interested in -- how you express your views on china.

We know that you are short caterpillar, the big industrial machinery maker with heavy exposure to china because of the commodities industry.

How else do you express your view?

Caterpillar and a few other not chinese companies have to do with what we see as the end of the commodities super cycle, industrial commodities, which have just gone ballistic in the last 10 years on the china infrastructure and real estate buildup.

If you look at things like iron ore, copper, cement, steel, it's all the same story.

To give your viewers an idea, in 1991, total cap next in the mining area globally was $4 billion.

10 years later, it was $14 billion as we got to 2001 and 2002. in the next 10 years at the peak, it went to $120 billion.

It became a geometric function in the last 10 years.

When people say it could drop off a little bit, they think it could drop off slightly.

It could drop off a lot erie so it's more than just caterpillar.

Do you short the aussie dollar?

There are countries that will not do as well.

But there are big commodity companies that have gone on acquisitions brees.

-- acquisitions brees.

We are long on companies in australia and we are short leverage guys.

One of the great thing about the short side is i don't always -- but it's one of the great things about you coming on tv erie we have been public on a few country -- a few companies.

One is for to skew.

It's an iron ore play . iron ore is about $130, up from 40 or 54 years and years.

We have talked about vale in the past.

You are constantly looking at chinese business and the cultures.

Most recently, what is your recent fighting saying i know i'm right?

The continued push for investment spending, every time the economy seems to slow down.

Even in the august data, people got excited again.

China is pulling out of this june credit lip.

It was all new products being approved.

They don't know how to change this model and we've been talking about it for three years.

The problem is it simply the same story.

Stick a shovel in the ground, put up another building, and other stadium, and other railroad.

And who is living in it?

Nobody.

At this point, the returns are minimal.

We saw on your newswire, about 50 new international airports being greenlighted in china.

And really there's only room for five or six.

How hard is it for you given your name and your firm -- you can't go to china.

How hard is it for your team to get real research there?

It's a lot easier than you might think.

The thing about real estate bubble and an investment double is that it's visual.

You can literally go to these cities, and we have, and just travel up and down the boulevards and take photos and compare the ones you did from one year ago to current ones.

China does give you recent granularity at the company level.

The banks give you a lot of data, they do trade publicly in hong kong.

That has been disclosure the hong kong market.

It's not as difficult to get information as you might think.

If the chinese economy is an allusion -- -- if the chinese economy is an illusion, what do you see it as?

I see it as much more volatile.

It could grow quickly.

You look at stuff like railcar loadings and power consumption, the numbers are far more volatile.

If we see that manifested , a lot of that has to do with china.

How else is it going to be transmitted to the global economy?

Where are we going to see china have an impact?

Anybody selling raw materials into china.

Africa will have a problem.

Australia will have a problem.

Brazil will have a problem.

The amount of chinese capital going into these projects globally will dry up.

When?

It depends when they need to repatriate the capital back to china.

All of these things will probably happen, when is a good question.

But it's already happening in terms of market prices.

The chinese market has continued to on -- continued to underperform area isn't it difficult to have these short positions when you are waiting?

We're not talking a bill ackman regulatory short where you cross your fingers and say man, need the government to get involved.

But when you start to say i know this is going to happen but i needed to happen sooner rather than later, i have investors?

The one place they are happy we have been short is china.

Everything else has been more problematic.

It has been a place that the credit cycle is continuing to unfold in slow motion and pressuring equity returns.

One fun fact -- the chinese economy has basically quadrupled its nominal terms over the past 10 years.

The chinese equity market is flat over that time.

That's an amazing statistic.

This text has been automatically generated. It may not be 100% accurate.

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