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China Corruption Good for High End Real Estate Credit

November 6, 2012

In a piece about two years ago, while expressing our admiration for the great short seller Jim Chanos (https://crediteye.wordpress.com/2010/12/14/investor-jim-chanos-almost-always-right/) we opined that he was wrong on being pessimistic about the Chinese real estate sector, particularly the high-end real estate sector.  We came to this conclusion based on anecdotal evidence on the scale of corruption in China.  We mentioned that the ill-gotten fruits of corruption was invested in real estate- so, at the high-end, there was limited bank funding involved and hence low possibility of bank NPAs.  The recent NYT note stating that Chinese premier Wen Jiabao was worth $2.5 billion takes the evidence to beyond anecdotal level.  So, the threat to Chinese banks does not come from real estate loans- it comes from loans to state-owned industrial companies (see https://crediteye.wordpress.com/2011/05/11/credit-entropy-and-the-china-credit-syndrome/)

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