“If the Chinese economy decelerates or crashes, what you have is a disastrous environment for industrial commodities,” said Faber, who oversees US$300 million at Hong Kong-based Marc Faber Ltd.
The stimulus tap that Beijing turned on has flowed to projects such as its 2 trillion yuan high-speed-rail network. The 221 billion yuan Beijing-Shanghai line has surpassed the Three Gorges Dam as the single most expensive engineering project in Chinese history.
BETTING ON REAL ESTATE
Some beneficiaries of the government efforts have plowed their loans into real estate and stocks. Property prices across 70 cities jumped 9.5 percent last month from a year earlier, according to government data.
Instead of concentrating on their core businesses, giant state-owned enterprises (SOEs), have bet on real estate, according to Zhang Xin, a former Goldman Sachs Group Inc analyst who is chief executive officer of Soho China Ltd, the biggest property developer in Beijing’s central business district.
“All the SOEs are bidding the prices up to the sky,” Zhang told China International Business, a magazine backed by China’s Ministry of Commerce, in December.
That’s despite record-high office vacancies in China’s capital, according to Boston-based commercial real estate company Colliers International.
Chanos, a short-seller who was early to warn about Enron Corp, is one of a growing number of investors sounding the alarm.
“Right now, the Chinese market is overheating,” George Soros said in a Jan. 28 interview.
Local government officials have wasted stimulus funds by replacing infrastructure that was fine in the first place. State media complained in May last year that party chiefs in Jianyang, Sichuan Province, decided to help boost the local economy by rebuilding a bridge that was in such good condition it had emerged unscathed a year earlier from the earthquake that killed 70,000 people. The so-called Bridge of Strength withstood a demolition crew that tried to blast it to pieces with dynamite, the official China Daily reported.
Another example Chanos has cited is the city of Ordos, where party officials have built an entire new downtown on the windswept grasslands of Inner Mongolia, 25 km outside the existing municipality of 1.5 million people.
Mark Mobius, meanwhile, is sticking with China. The executive chairman of Templeton Asset Management is encouraged that the government is pulling back some of its extraordinary economic support.
We see the government’s tightening of lending as a positive because it moderates the risk to some degree,” says Mobius, who oversees US$34 billion. “This is a correction in an ongoing bull market.”
Chris Ruffle, who helps manage US$19 billion for Edinburgh- based Martin Currie Ltd, also remains confident China will avoid a bust.
“It’s not a highly leveraged situation,” says Ruffle, who works in Shanghai. “I was in Japan in the 1980s, and that was a bubble. Here in China, we are nowhere near that.”
Still, even Mobius says investors have to be wary. He got rid of an investment in a Chinese food company after discovering that it was using funds to buy apartments instead of to process soybeans.
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