A Shanghai girl performs tea ceremony
There is a raging debate online over whether China should be sold short (that is, whether you should bet that its economy is a bubble ready to burst). It seems as though Jim Chanos, the legendary short-seller and founder of Kynikos Associates, got the ball rolling (or at least the most recent ball) in a CNBC interview and a presentation now available on YouTube.
"We're not calling for an impending crash of China or of the Shanghai stock market," Mr. Chanos said on CNBC in January. "But in particular, the bubble that's been blown up in real estate, both commmercial and residential as well as other forms of fixed asset investment in China, it's unprecedented." More alarming, he recently called China "Dubai times 1,000 -- or worse."
Thomas Friedman seized on that point in a January New York Times column, arguing that one should never short a country that has $2-trillion (U.S.) in foreign currency reserves. That sounds persuasive at first glance, but columnists, bloggers and economists are now debating the value of foreign currency reserves -- and the consensus appears to be leaning towards the conclusion that big reserves can be a sign of trouble.
You can follow the fun here, at the Economist's Free Exchange blog.
David Berman