How can investors prepare themselves for a major Chinese slowdown? Doubts are mounting about the health of China's property market, Beijing's ability to control inflation and the true extent of government debt, The Wall Street Journal reports. Last week, the central government disclosed that local governments owed debts equal to a quarter of gross domestic product. It's hard to imagine a large chunk of those borrowings won't turn sour.
All that means bets against China are attracting new attention. Popular places to profit from a negative bet on China have gotten crowded. In recent months, some hedge funds have earned big money after borrowing shares of U.S.-listed Chinese companies, many with auditing or governance problems, in order to profit from their subsequent fall.
Several say the easy money has been made. More to the point, these stock bets aren't really a play on China's broader economic health but rather on specific company woes. Some investors are shorting exchange-traded funds that invest in China's heavily restricted yuan-denominated "A-share" markets in Shanghai and Shenzhen—that is, selling borrowed securities to profit from their fall. But the underlying A shares are battered, with the main index off nearly 20% its post-financial crisis highs of August 2009. ….
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