Jim Chanos and Mohammed El-Erian crossed swords this morning on Squawkbox.
Chanos had just compared China to the Soviet Union and said that both countries inflated growth with fixed asset investments:
Remember, the Soviet Union grew 6 to 7 to 8 per cent for 40 years after World War 2, but a lot of it was illusionary squandered investment. My concern about the soft landing [in China] argument is that with fixed asset investment at 70 per cent of GDP, a soft landing almost automatically through the numbers becomes a hard landing. If you throttle back on your fixed asset investment, the consumer can’t pick up fast enough and consumer is only about 30 per cent of the Chinese economy, down from the 40s. The much vaunted argument that the consumer is going to pick up the slack in China is a bit of a tautology, as the ability of the consumer is tied to the property market because that’s where the jobs have been.
El-Erian responded with a takedown:
This is not the Soviet Union for two reasons. First, China is tested every single day on global markets. The Soviet Union was not. China is tested in a competitive environment, and so far they are doing well. Secondly, China can afford many more mistakes than the Soviet Union could. The comparison to the Soviet Union is limited. I think the major issue is can China soft land without the global economy hard landing.