Investors should bet against Chinese banks because the country is overbuilt, the real-estate boom is over and the economy lacks internal demand needed to keep the financial sector healthy amid times of flower growth, says Jim Chanos, founder and president of hedge fund Kynikos Associates.
"If you looked at the performance of the banks over the last two years ... they have been great shorts," Chanos tells CNBC.
"They have been going down — they're down 30 percent over the last two years."
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Loose monetary policies and strong growth led to a real-estate boom in China, but today as growth cools, Beijing is working to ensure a soft landing as the economy corrects.
Meanwhile, the government won't break up big banks in China. Like in the U.S., talk of such moves is easier said than done.
"I would believe it when I see it to break up the banks," Chanos says.
"In China, remember, the banks are arms of state policy. They loan because the local party official or regional party official tells them we need a new stadium. They are instruments of state policy. I really doubt the party is going to give up a lever of power by breaking up the banks."
Other experts worry if China can avoid a hard landing, especially as the country is dealing with a real estate bubble, including Bert Dohmen, president and founder of Dohmen Capital Research Institute.
"If they define soft landing as by landing in quicksand and mud, then they will be right. But this will be a hard landing in my opinion," Dohmen tells Newsmax.TV.
"Condominium sales were plunging — they're down over 50 percent. Prices are down 50-60 percent. Now if that is a soft landing, I think we have to redefine soft landing," Dohmen says.
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