According to renowned short-seller Jim Chanos, investors are mainly ignoring a significant development in China behind all the hoopla surrounding Russia’s invasion of Ukraine and the fight against inflation.
The conflict and rate increases intended to control inflation come out on top, with problems in the Chinese real estate market coming in third.
But Chanos, who is particularly well-known for his lengthy history of wagers against the world’s second-largest economy, claimed that it is a significant story with far-reaching ramifications, especially at a time when the state of the world’s markets is precarious.
“If what is going on in the world, whether it be Russia/Ukraine, whether it be central banks losing control, whatever it be, are not occurring right now, I think what is happening in the Chinese real estate market would be front and centre for investors,” said the founder of Chanos & Co.
Due to the nation’s worsening crisis, which is brought on by a multitude of circumstances, home sales have decreased at their greatest rate since China began allowing private property transactions in the late 1990s.
To end the crisis and allay builders’ concerns about private financing, authorities earlier this week lowered one-year prime rates and five-year mortgage rates. The government’s zero-Covid policy is harming the economy and has made matters worse as a result of the pandemic.
Chinese house prices are unquestionably the most important asset class in the world after Treasury bonds. Aside from that, they are slipping,” Chanos said. This is important since the Chinese economy still depends on investment for around 50% of its output. China has seen a serious real estate crisis over the past 18 months, which the government doesn’t seem to have a handle on.
Evergrande, China’s second-largest property developer, has faced criticism for its business practises and defaulted on dollar-denominated obligations, making it the face of the country’s real estate boom.
But Chanos asserted that the problems are more complicated.
You must understand that almost every big company in China has a real estate development branch, much like Tokyo. So it’s not just the developers, he continued. This is a problem for the entire economy there. In my opinion, we ignore it at our peril.