Hedge funds bet China is a bubble close to bursting
The world is looking to China as a springboard out of recession – but some hedge funds are betting the country’s credit and growth levels cannot be sustained.
By Louise Armitstead
16 Jan 2011
For his first-ever speech as Britain’s new Minister of Trade & Industry last week, Lord Green faced a formidable audience of 400 Chinese and British business delegates.
The former chairman of HSBC declared that China’s economic growth figures over the past five years represented an “extraordinary historic event”.
Green didn’t need to go over Britain’s experience during the same period for most to agree that plugging into China’s blistering growth – predicted by the IMF to be 10.5pc this year – was of “vital importance” to the UK.
But even as he spoke a hedge fund manager in Mayfair was poring over spreadsheets of sovereign and corporate credit default swaps, interest rate and foreign exchange options with one aim: to “get short on China”.
The manager, who wanted to remain anonymous, said: “The Chinese delegation has said all week that there will be double-digit growth for years to come and the Brits have lapped it up. But the data doesn’t add up. We think we’ve experienced credit bubbles over the past few years, but China is the biggest. And yet the global economy is looking to China as not just a crutch but a springboard out of the recession. It’s crazy.”