Monday, November 01, 2010

Notes From the Ground in China, Part III

By Eric Jackson
RealMoney Contributor

11/1/2010 11:15 AM EDT
Click here for more stories by Eric Jackson

I've been in China for the last 10 days, and I've been tweeting out pictures and comments all along the way. If you're interested, please check out this Flickr group to see some.

I've been surprised at how many people have sent tweets or messages to me in response to my updates. U.S. investors are obviously very interested in China. Some are very bullish on the country and its equities, while others are very nervous and believe the country's economy is about to fall off the cliff. I want to respond to some of the criticisms I've heard and respond to them on the basis of my on-the-ground experiences in the country.

First of all, a disclosure: Anyone who has read some of my articles will know that I'm bullish for the short and long term on China. I don't consider myself a Pollyanna. I would like to think I'm a realist. There certainly are risks to the country's future growth. However, I don't think the risks I see match up with the ones most commonly expressed by Jim Chanos orThe New York Times.

  • Concern No. 1: China has a housing bubble that's going to explode.

This concern has been out there for almost a year and was probably started by hedge fund manager Jim Chanos. Even he admits that this is likely only a bubble relevant to China's "coastal cities," which are experiencing the most growth (Shanghai and Shenzhen, but Beijing must be included as well, being the capital and such an important place for government and commerce). The Chinese government enacted restrictions earlier this summer to cool down speculation in the hot markets (although lower-tier cities had the freedom not to enact the new rules and haven't). There is certainly evidence that the quantity of transactions in these cities dropped immediately after the new rules were implemented, but the prices in major cities have stayed up.


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