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In making his now-(in)famous comment that China is in a bubble that looks like 'Dubai times a thousand,' prominent short-seller James Chanos crystallized the debate over the country's economy and inspired a torrent of both praise and criticism.

Chanos, who runs the hedge fund firm Kynikos Associates, was quoted making the Dubai quip in a profile in the New York Times in early January. Thomas Friedman, one of the paper's columnists, responded a week later with a quip of his own: 'First, a simple rule of investing that has always served me well: Never short a country with $2 trillion in foreign currency reserves.'

The latest to join in piling on Chanos is Jonathan Anderson, the respected emerging-markets economist for UBS AG (UBS) and a longtime China watcher. In a report this week, Anderson deployed an impressive array of charts to make the point that 'China looks nothing like Dubai.' While Dubai had rapid growth in bank lending and property deals for several years before its bubble burst, he says, China hasn't had those symptoms until that last 12 months or so--and the government is already trying to cool things down.

Rather than looking like Dubai on a continental scale, China is having more of a 'mini Dubai moment,' Anderson argues. Things are going to slow down this year, which means that ''big China bears' could easily look like heroes for a while during 2010,' he says, 'even if their more dire predictions are proven very wrong at the end of the day.'

As far as sound bites go, it's fair to say, 'mini Dubai moment' has nothing on 'Dubai times a thousand.' But to be fair, Chanos' argument is more than a sound bite. In an hour-long presentation at Oxford University's China Center on Jan. 28, Chanos fleshed out his views.

In that talk, Chanos said the 'Dubai times a thousand' line was 'tongue in cheek.' The serious point he was trying to make, he said, is that 'We've now seen residential real-estate speculation really take hold in China.' And given the recent excesses in the property market, that point is hard to argue with.

Chanos said his position on China is more nuanced than some might think. 'This is not a call for an impending crash. That's not what we're saying. What we are saying is that there are classic pockets of overheating and overindulgence,' Chanos said in his talk. 'We have without a modicum of doubt a credit-driven property bubble going on in China right now,' particularly in commercial real estate.

But he wasn't shy about responding to critics in the talk, dismissing Friedman's 'never short' line by pointing out that there has never been a nation with $2 trillion in foreign exchange reserves before, so there's not much of a historical basis for such a rule. 'Unfunded liabilities for the government dwarf their $2.4 trillion in foreign reserves, so the perception that they're sitting on this pool of money is just misleading,' he said. (Some analysts might take issue with his math.)

For the moment, the Chanos-is-right camp is still ahead on catchy slogans. One of its members is the investor-blogger Vitaliy N. Katsenelson, who recently put together a presentation calling China 'the mother of all black swans'

Andrew Batson

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