A "short-seller" is a type of investor who bets that the value of something will decrease. It is a very risky investment technique that I NEVER use, because you can lose -- not only the amount you invest -- but also EVERYTHING you own.
One of the most famous and most successful short-sellers in the U.S. is Jim Chanos. Three years ago, I saw him on CNBC predicting the collapse of Chinese economy, primarily due to over-building in residential construction.
Two years ago, I went to China and did indeed see an enormous amount of residential construction. However, from my previous studies of China, I was aware of the hyper-sensitivity of the country's Communist leadership toward social unrest, which could easily be aggravated by the mass movement of people from the rural areas to the cities. I was told many times that the breakneck level of construction was necessary to maintain "social peace."
Last Sunday, there was an excellent story on Sixty Minutes about all these ghost buildings and even ghost cities. Suddenly, the subject of a Chinese real estate bubble was on everybody's lips.
Little noticed on Tuesday, the Chinese government announced a simplified approval process for the huge backlog of applications from citizens seeking to migrate from the farms to the city, in order to fill-up all this empty real estate. The backlog is so great they could reduce vacancy enormously almost overnight.
I knew there was a grain of truth to what I was told a few years ago that the excess residences were built to accommodate the migrants. There still is . . . a grain of truth, that is. However, that does not mean there has been no waste!
If you are providing a $400 thousand residence to every worker who can only afford a $250 thousand residence, you have wasted $150 thousand of the nation's multi-trillion dollar reserves. Any other nation would certainly be experiencing a real estate bubble, but China may be the first nation that can afford it. This is not to say China doesn't have a debt problem, because it does, but it is a private debt problem, not a government debt problem. Also announced on Tuesday were increased restrictions on real estate lending. Unlike many nations, China can make a decision.
What makes a real estate bubble so damaging to the economy is that it usually produces a financial crisis, but what happens if it doesn't? It is over-reach to suggest the Chinese real estate bubble will be as dangerous as the U.S. real estate bubble.
One of the most famous and most successful short-sellers in the U.S. is Jim Chanos. Three years ago, I saw him on CNBC predicting the collapse of Chinese economy, primarily due to over-building in residential construction.
Two years ago, I went to China and did indeed see an enormous amount of residential construction. However, from my previous studies of China, I was aware of the hyper-sensitivity of the country's Communist leadership toward social unrest, which could easily be aggravated by the mass movement of people from the rural areas to the cities. I was told many times that the breakneck level of construction was necessary to maintain "social peace."
Last Sunday, there was an excellent story on Sixty Minutes about all these ghost buildings and even ghost cities. Suddenly, the subject of a Chinese real estate bubble was on everybody's lips.
Little noticed on Tuesday, the Chinese government announced a simplified approval process for the huge backlog of applications from citizens seeking to migrate from the farms to the city, in order to fill-up all this empty real estate. The backlog is so great they could reduce vacancy enormously almost overnight.
I knew there was a grain of truth to what I was told a few years ago that the excess residences were built to accommodate the migrants. There still is . . . a grain of truth, that is. However, that does not mean there has been no waste!
If you are providing a $400 thousand residence to every worker who can only afford a $250 thousand residence, you have wasted $150 thousand of the nation's multi-trillion dollar reserves. Any other nation would certainly be experiencing a real estate bubble, but China may be the first nation that can afford it. This is not to say China doesn't have a debt problem, because it does, but it is a private debt problem, not a government debt problem. Also announced on Tuesday were increased restrictions on real estate lending. Unlike many nations, China can make a decision.
What makes a real estate bubble so damaging to the economy is that it usually produces a financial crisis, but what happens if it doesn't? It is over-reach to suggest the Chinese real estate bubble will be as dangerous as the U.S. real estate bubble.
