by Jeannette Di Louie, Investment U Research
Tuesday, November 29, 2011
Once upon a time, the term BRIC meant something. Brazil, Russia, India and China were all seen as rising stars in the global economy, and investors couldn’t get enough of them.
Not so much anymore. These days, only China seems to make the news.
Admittedly, there’s some good reason for that. The Chinese economy has grown by leaps and bounds for years now, and its political sway seems to be increasing just as quickly.
Just this month, U.S. President Obama refused to make a decision on Iran’s nuclear aspirations before he spoke to Chinese leaders. No wonder many economists predict China will surpass the United States as the world’s largest economy in less than 20 years.
Then again, economists and amateurs alike have made similar predictions for quite a while now. And while China might have another several strong years left in it, investors still might want to consider a different perspective on the communist country before they shift all of their money into it just like that.
Jim Chanos Sees China As the Next Enron
Trying to find a bearish opinion on China may seem like asking Congress’ so-called Supercommittee to get along, but it’s not nearly so difficult if you know where to look.
Take Jim Chanos, the short seller who famously predicted Enron’s collapse and the fall of the U.S. housing market. He’s publicly stated his opinion repeatedly that “China is heading for a fall”… and a big one at that.
“The property crash in China will be worse than it was in America or the U.K.,” he foretold back in February, after making similar predictions in 2010.
Don’t shrug off his prediction lightly just because it’s practically 2012. After all, Chanos first began shorting the U.S. housing market in 2005, well before anybody else had a clue about its imminent collapse.
Meanwhile, national security analyst Tom Barnett also believes China has a rocky future ahead of it due to “a lot of developmental walls” the country has built up in its own way. And Troy Parfitt, author of Why China Will Never Rule the World, completely agrees, saying that, “China lacks superpower qualities and hasn’t discovered any in its mad dash into capitalism.”
The Facts Don’t Bode Well for China
Three China bears against the likes of Jim Rogers, Mark Mobius, George Soros and practically every Tom, Dick and Harry around may not seem very impressive at first.
But isn’t that partially the point?
In the 1980s, everybody knew that Japan would surpass the United States as the next big superpower. During the 1990s into the 2000s, everybody was certain that real estate had only one place to go: up. And at one point or another, everybody thought that investing in Worldcom, Enron and Lehman Brothers were safe, sure-thing plays.
In other words, “everybody” gets its wrong far too often. And when it comes to China, “everybody” is missing several key facts that don’t bode well for the country…
A Final Caution on China
Perhaps the U.K.’s Telegraph said it best when it summarized acclaimed author Xué Xinran’s opinion of China’s future outlook:
“Its young are incapable, its old are exhausted and box-ticking bureaucrats make life hell. China, a superpower? First, it needs to grow up.”
That’s not to say that investing in the Asian tiger right now isn’t a good idea.
More than likely, the global economy will remain far too consumed with European and American financial woes well into next year, if not beyond. And that means negative focus will stay off of China for the time being.
Just keep in mind that the country’s long-term prospects aren’t nearly as rosy as China bulls want to believe. By now, the investing community should know better than that…
Nothing ever is.
Good investing,
Jeannette Di Louie
Article by Investment U