Jim Chanos Has A Whole New Reason For Going Dark On China

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Jim Chanos was on Bloomberg TV's Charlie Rose last night talking China - and so yes, as expected, it was dark.

But there was a whole new political element to Chanos' negativity that we haven't heard from him before.

"The anti corruption drive, which is something we've been focusing on for the last year and a half, since Xi Jinping has been in power, is actually much more than that," Chanos told Rose. "It now appears to us to be a far more serious effort to cleanse the party. And if you look at the people's daily overnight announcements-- I mean, there is four or five headshots put up on Twitter and on their web site, of people who have been taken away every night. I mean it's almost as if you're seeing a Soviet-style 1930s purge through a social media...People are falling out of buildings. I mean I'm not exaggerating..."

Yes, you hear about the national politicians that get taken away, but the lower level officials never make U.S. headlines, and they're getting taken all the time.

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It looks like this:

Or this:

The problem, Chanos continued, is that this purge is beginning to impact the economy in terms of consumption because a "large number of things like apartment sales, high-end luxury products, were bought with basically dirty money."

It's well known that Chanos thinks China's infrastructure and housing development has the country on a "treadmill to hell." Growth (the speed of the treadmill) has to remain at a healthy number like 7.5% of GDP, so even if there's not enough organic consumption (i.e. people to live in houses and use roads), development must continue.

The dirty money that he's talking about, though, was real people paying for real things they were using with real cash - corrupt or not.

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To Chanos, Xi is doing this to consolidate his own power. He sees Xi as more of a Putin - one man leading the country - rather than one man leading a committee.

"Although he [Xi] is a communist, and part of the Communist Party... he is a nationalist," said Chanos. "And I think that two years ago, three years ago, we would have said he will be first among equals. I think it's very fair to say now he's first. And that he's going to be much more firm, much more aggressive, and much more
muscular in the way he looks at the world."

This isn't a new way to look at leadership in China. In fact, this idea of how the country should be governed has existed since the 1980s, it's called 'neo-authoritarianism.

It argues that, China needs a strongman who also believes in capitalism to really get China's economy in gear. Everyone else can sit down and enjoy the ride.

Xiao Gongqin, a history professor at Shanghai Normal University started arguing this in the 1980s, and based it on Deng Xiaping, an authoritarian economic reformer.

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So it's not like this idea doesn't have any fans.