Shutterstock photo
Markets

Chinese banking system “built on quicksand,” Jim Chanos warns (FXI, TAO)

Shutterstock photo

Shutterstock photo

Long-time China bear Jim Chanos has been making waves again saying that "the Chinese banking system is built on quicksand, and that's the one thing a lot of people don't realize. The banking system in China is extremely fragile." Chanos made his ominous pronouncement on Bloomberg a few weeks ago, much as he did in the spring of 2010. So far, Chinese banks have not imploded -- if anything, Beijing has been relentless in its efforts to keep local lenders from overheating.

And Chanos's fellow billionaires disagree. Jim Rogers, for example, expects a "soft landing" for China.

As detailed in a recent article on www.emergingmoney.com , Rogers is long commodities and shorting stocks, expecting a hard landing for the United States and Greece, but not China . Goldman Sachs, Morgan Stanley and JP Morgan also expect a soft landing for China.

And this stance plays into commodities. There is much support behind China being able to manage its way to an economic soft landing, and Goldman in particular thinks this will play into higher oil prices.

Lenders like Industrial & Commercial Bank of China ( IDCBY , quote ) and Bank of China ( BACHY , quote ) and real estate funds like TAO ( quote ) may have downside ahead, but unless they really crash, Chinese factories will still need plenty of oil and other raw materials.

Remember, China recently reported economic growth of 9.1% for the third quarter of 2011. That is down from 9.5% for the second quarter of 2011, but even if economic growth in China were to decelerate by 10%, the gross domestic product would still expand by more than 8% in 2012.

On the other hand, broad funds like FXI ( quote ) are roughly half banks, so they are unusually exposed to any downturn there.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Other Topics

Stocks

Latest Markets Videos