How 'chaos capitalists' got it so wrong on China

Dan Steinbock
Since the 1980s, chaos capitalists have been undermining the progress of emerging economies, under the pretext of "efficient markets."
Dan Steinbock

Since the 1980s, chaos capitalists have been undermining the progress of emerging economies, under the pretext of “efficient markets.”

Recently, hedge funder Jim Chanos appeared on CNNMoney’s “Markets Now” program that was promoted heavily on CNN as “Chanos got China right.”

Amid the global crisis, Chanos predicted that China would collapse. Nevertheless, CNN characterized his 2009 call as “brilliant.” The question is, why?

Most international media portrays Chanos as a “financial wizard” who has made fortunes from shorting companies ever since 2001 when he targeted the US energy company Enron that he predicted would fall before it filed for bankruptcy.

That’s when Chanos “cooperated” with Fortune’s Bethany McLean, who prospered from a book deal, as did Joe Nocera, another high-profile business reporter (who also has been dogged by claims of “conflict of interest”). In the process, Chanos, along with other hedgefunders like Steve Cohen and Daniel Loeb, were sued for paying negative stock-research reports that helped drive down stock prices.

In the fall of 2009, Chanos predicted China would head the way of the “old Soviet Union.” In January 2010, the New York Times reported Chanos’ prediction that China’s economic crash would resemble “Dubai times 1,000 — or worse.”

After Chanos made his China prediction, David Barboza of the New York Times, following in the footprints of CNBC and, reported that “contrarian investor sees economic crash in China.” As these stories failed to create a backlash against China, Fortune, among others, released a story about “Chanos vs China,” in which the hedgefunder said that China was a huge real estate bubble.

As China’s progress continued, Chanos began a new round in 2015, when Joe Nocera of the New York Times, again, released a major report about “The Man Who Got China Right.” While the story did not prove true, it contributed to the tripling of Chanos’s fund to US$3 billion in half a decade. As China’s growth prevailed, Chanos began his most recent media round, this time with CNN where he declared: “Nobody ever makes any money in China,” although droves of US subsidiaries have thrived in China, from Apple and Boeing to GM.

How did he get China so wrong?

That’s the Chanos game — well-timed interviews, shorting of companies and nations, and collusion with dominant international media. But what about its truth value? Chanos made an explicit comparison with the collapse of the Soviet Union, which caused Russian GDP to decline by 45 percent in the 1990s. In reality, between 2008 and 2018, the Chinese economy will triple to US$13.1 trillion. Meanwhile, foreign multinationals operating in China have reaped great profits, along with investors.

Chanos’ prediction, based on the collapse of the Soviet economy, would have meant a plunge in Chinese GDP from US$4.6 trillion in 2008 to US$2.1 trillion today. In other words, Chanos’ projection of the Chinese economy proved to be almost 700 percent smaller than the actual reality.

CNN prides itself as the “world’s most trusted name in news.” But to claim that “Chanos got China right” would seem to be grossly disproportionate. It fosters the perception that the global news hub allows itself to be played by private financial interests.

Chanos manufactures perceived liabilities with the media. In such “short-and-distort” campaigns, the manipulator shorts the stock or the country and then spreads misleading, false, negative information to drive prices down, leading to a huge profit when the investor eventually closes the short positions.

When dominant international media collude with chaos capitalists, emerging economies face real threats as the financial few are allowed to enrich themselves by impoverishing entire poor nations.

Dr. Dan Steinbock is an internationally recognized strategist of the multipolar world, and the founder of Difference Group.

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