If Chanos Thinks China Is Dubai 'Times One Thousand', Then Who Will Be Their Abu Dhabi?

To understand China’s future, look to what happened with Dubai, and then multiply by one thousand according to Jim Chanos during a January speech at the London School of Economics.


Such undertakings figured in warnings hedge fund manager Jim Chanos delivered in January that China is Dubai times a thousand. The costs of wasteful investments in empty offices and shopping malls and in underutilized infrastructure will weigh on China, Chanos, president of New York-based Kynikos Associates Ltd., said in a speech at the London School of Economics. “We may find that that’s what pops the Chinese bubble sooner rather than later.”

If that’s the case, then how might the nation be bailed out once the bubble pops? There’s no Abu Dhabi backing China.

But see, this is why the analogy doesn’t really work. China can probably bail itself out, by simply taking on massive amounts of debt in order to inject even more stimulus into the economy.

China’s government can do this because it doesn’t have the debt problem of Dubai, thus it has lots of room to play a developed-nation style game of passing the buck to future generations every time a crisis hits by simply using added debt to dull the economic pain. So its far different than Dubai — China can probably keep stimulating its economy on its own, even against economic reality, for quite some time to come.

The worst danger would be that, during a China crash, a newly debt-funded Chinese government reduces its purchases of U.S. treasuries from the long-time debt-funded U.S. government. That’s how a China crash could translate into a U.S. debt crisis.

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