Wednesday, April 07, 2010

China Is Not in a Property Bubble

By Eric Jackson, Senior Contributor

04/07/10 - 07:00 AM EDT

Last week, I presented the case for why China is not in a property bubble.

In doing so, I disagreed with Jim Chanos' view on the subject and presented my arguments, based on my recent visit, which included interviews with Chinese professionals operating over there, and the statistics we have available to us.

There have been a few strong reactions to the article. I followed up with Chanos, saying that I obviously disagreed with him on this issue but that I otherwise respected and admired his work. I asked if he wanted to discuss our differing views on China either on or off the record. He didn't and has since declined an invitation to expressed his views for this article.

Chanos' argument -- and he's not alone in his thinking -- is that Chinese property prices are out of control, especially in the coastal cities. Almost by definition, his description of what's happening at the moment as a bubble implies a hard landing coming.

He hopes to profit from that hard-landing by shorting the foreign companies directly benefiting from the current property boom. This would include names from cement (like Cemex(CX) and Lafarge), iron ore (likeVale(VALE), Rio Tinto(RTP), and BHP-Billiton(BHP), copper (likeSouthern Copper(SCCO), and Freeport McMoran(FCX), and oil companies (although Chanos hasn't disclosed any specific names he's shorted). It would also include foreign-based property companies with exposure to China, such as many Hong Kong-listed developers.

My counter-view didn't dispute that Chinese property prices have been rising. Some have said prices in several cities doubled from 2003 to 2007 and they've doubled again since then.

However, there are many factors which differ between what is going on in China now and what happened two years ago in the U.S.

These differences, to my eyes, suggest that prices aren't as out of control as is often is suggested. Furthermore, the Chinese government has tremendous authority to intervene in the markets to ensure a soft landing. Its ability to do that will help the China growth story play on for many years to come.


[This post is an excerpt of the full article, which is available on by clicking here. Free Site.]

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