Contrarian Investor Jim Chanos Predicts Chinese Economic Crash (ENE)

James C Chanos, who started the Kynikos Associates investment firm, is of the opinion that China is building a number of assets bubbles and will collapse. He is therefore bearish on China’s stocks as compared to investors of the likes of Warren Buffett and Wilbur Ross Jr. who are very optimistic about China’s growth in 2010 and are adopting a bullish strategy.

Mr. Chanos says that bubbles are created because of credit excesses and there is a huge amount of credit excess in the Chinese economy as a result of huge stimulus by the Chinese government as well as huge amounts of lending by Chinese banks to pull the economy out of the recession. He however also says that it will be difficult to take positions against Chinese stocks as foreigners are restricted from investing directly in stocks listed in China. Hence, he is thinking of betting on construction and infrastructure related companies.

It is worthwhile to mention here that Mr. Chanos is the one who made huge profits, first by predicting that the Enron Corporation was in for a downfall, and then short selling Enron's stock. In the past, short sellers have been blamed for intensifying short selling and being the reason for a companys’ debacle. Due to this, short selling strategies may eventually be restricted by regulatory authorities. Mr Chanos however, is quick to point out that his short sell strategy also identified the Boston Market downfall and other financial disasters like Tyco (NYSE: TYC).