Is China faking its economic growth?

@CNNMoney February 16, 2012: 3:36 PM ET

NEW YORK (CNNMoney) -- Influential short-seller Jim Chanos is still on a China rampage.

Known for predicting the Enron collapse, the chief of Manhattan-based Kynikos Associates, has been betting on a Chinese slowdown for a few years now, and once famously remarked, the world's second largest economy is on a "treadmill to hell."

He thinks the Chinese government is understating its inflation problem -- thereby making its economy look stronger than it actually is.

"One of the things I'm pretty convinced of based on our analysis, is that inflation is under-reported in China by as much as 4 to 5% a year," he told CNNMoney's Poppy Harlow in an interview.

China's official statistics office recently reported that the country's inflation rate had risen to 4.5% for the 12 months ending in January.

Overall, inflation has cooled since July, when it was up 6.5% year-over-year.

Taming rapidly rising prices had previously been one of the country's top priorities, but now as the inflation rate has fallen, many investors believe it opens the door for China's central bank to shift to looser monetary policies.

Where the candidates stand on China

If Chanos is right and the Chinese government is under-reporting its inflation data, its measure of economic growth would also be off-kilter. The latest government data shows the Chinese economy grew at an 8.9% annual pace in the fourth quarter, only slightly weaker than the typical 9% to 10% growth rates it has seen over the last few years.

While economists are often skeptical of China's government figures, Chanos estimates those numbers are way off.

"We are seeing rapid falloffs in demand in things like construction equipment, railway construction over there, housing sales -- so lots of things are slowing down pretty quickly over there," he said.

"It remains to be seen whether that's going to go into a full-fledged recession. I do think the property sector which is where we're focused on, is going to enter -- or has entered a recession." To top of page

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