Is there an Asset bubble in China - Roach v Chanos 1

4 May 2010 Bloomberg

Stephen Roach: Senior executive with Morgan Stanley Asia and a lecturer at Yale University's School of Management.
Jim Chanos: Manager, president and founder of the hedge fund Kynikos Associates based in New York City.


Jim Chanos --
There is a fixed-asset bubble in China, specifically in construction. And specifically in the construction of Class A office space, high-rise condominiums, where we see most of the fixed-asset construction occurring. Not just in the Tier 1 cities that everybody knows on the coast, but working inland as well. And the quantitative signs whether through the GDP accounts as much as we can put faith in them using the official numbers, or qualitatively and anecdotally, are legion. They are everywhere. There is no doubt that it is occurring. The interesting thing about a fixed-asset bubble is that it is tangible, you can see it.

The problem is how you get away from the heroin of fixed-asset investment. Whether it's regional cities with airports or high-speed railways or certain towns knocking down infrastructure, bridges and highways, to put up new ones...we can go on and on and on.




Stephen Roach --
Look there is a sharp increase in prices in residential property in a number of leading cities in China. But you know it pains me to take on Jim whom I have so much respect for {you ignorant ....}.

This is a country that has rural to urban migration of 15 to 20 million people a year. That's like two New York cities a year spring up in China. There are definitely cases where supply outstrips demand. I remember Shanghai in the 1990s. It was empty for years, now it's full. So I think in a developing economy the supply-demand imbalance especially in a place like China where there is not only a huge number of people but a huge shift in the character of the population, I think you've got to be careful in looking at supply-demand like in a place like Houston.

I am not denying there isn't a bubble. But they are in a process of popping this one right now through very aggressive measures. The Chinese are a lot smarter than we are in the US. We blow up the economy. They blow up the speculators.

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