From The Investor Who Called The China Fiasco ——-5 Things Jim Chanos Says You Need To Understand About Red Capitalism, by Linette Lopez

Not enough publicity and credit goes to those who get big market calls right and put their money where their mouths are. SLL salutes Jim Chanos, a China skeptic since at least 2010, who presumably has made a pile the last few months. From Linette Lopez at Business Insider, via davidstockmanscontracorner.com:

Jim Chanos, the founder of the short-biased hedge fund Kynikos Associates, has been questioning China’s growth numbers since 2010.

Now — with a recent currency devaluation, flailing stock market indexes, debt at 280% of gross domestic product, and manufacturing data flashing 2009 numbers — it looks as if his China call was a prescient one.

But the story’s not over. Even as more investors come around to Chanos’ way of thinking, there are things he still thinks the world doesn’t understand about China.

He shared five of them with Business Insider.

“China’s GDP figure is for politics, not economics.”

China has consistently hit its GDP growth target even though key sector indexes have been lagging for over a year.

“Eighty to ninety percent of the financial community is looking at this number,” Chanos said, “and it’s meaningless.”

What it can tell you, Chanos said, is that China isn’t really reforming its economy. It is not transitioning from an investment-based economy to a consumption-based economy as leaders have promised. Fixed-asset investment was 48% in 2010 when Chanos started looking at the economy. It’s now down to 46%.

Those numbers, he said, “still drive everything.”

“It’s all about the debt, not equity.”

The Chinese stock market is dominating the headlines, but Chanos thinks the real story is the country’s debt-to-GDP ratio.

“Chinese debt growth has been two to three times nominal GDP growth every year,” he told Business Insider.

“This is problematic because we go into this year with debt three times GDP. If you do the math, and even if the country’s GDP is growing at 5%, and debt is growing at 10%, in another six years we’re going to be at 400% debt to GDP.”

To continue reading: 5 Things Jim Chanos Says You Need To Understand About Red Capitalism