If the Chinese authorities had caught him making this video, they would have arrested him.
Hugh Hendry is a hedge-fund manager from Britain. Eclectica is the name of his fund. He's outspoken and critical of the establishment. You could say he's somewhat of a pariah in London's hedge-fund industry. In 2008, his fund generated 32% by making massive bearish bets.
Earlier this year, Hendry took a trip to Guangzhou, China's third-largest city after Beijing and Shanghai. There's been a huge construction boom in China in recent years, and Guangzhou is one of the hot spots. Developers have erected so many skyscrapers that Guangzhou's central business district could easily match Chicago or Boston for the number of modern, high-rise buildings.
So Hendry shot a video of the office buildings in the district. He focuses on one shiny black skyscraper with a giant neon screen at its base. It's close to 100 stories... And it's obviously brand new...
"This is a seriously large building," says Hendry. "We're talking at least half a billion dollars to construct this thing. It's empty! Who is going to fill this thing? Who is going to pay the debt that that building is resting on?"
Hendry's film shows several more skyscrapers, each as large and modern as any new tower you'd find in Manhattan... and they are all completely empty.
"This is astonishing," he concludes. You can watch the whole video here.
Thing is, the Chinese are incredibly touchy about foreign journalism. I experienced it first hand when I was in China last year and tried to organize a tour of a factory in Lanzhou. They almost arrested me when they discovered I didn't have a journalist visa. If the Chinese had known Hendry was filming empty buildings and posting his movie on the Web, they would have definitely arrested him.
So why does Guangzhou have so many empty office buildings? It's because of false market signals. The Chinese government's inflation and easy-money policies have led developers to build more office space than Guangzhou needs.
Now that the world economy has fallen apart, the mal-investment sticks out like an empty skyscraper.
From the reports I've heard, it's not just Guangzhou. There are now too many factories, too many buildings, and too much infrastructure relative to demand all over China.
Instead of letting the market liquidate these mistakes when the crisis struck, the Chinese government decided to make it even worse. Over the last nine months, it has forced banks to make more terrible loans and encouraged a new batch of unnecessary construction. A second China bubble has formed. You can see this second bubble in this chart of Shanghai's stock market index. It rose over 100% between November 2008, and July 2009.
But that bubble may be about to end. Three weeks ago, the Shanghai stock market reached a peak and started falling. Now we have the downtrend. We have a fantastic opportunity to short this bubble and make a fortune as the new Chinese miracle falls apart.
There are a lot of ways to go about shorting China. You can sell short commodities like copper and oil. Chinese stocks and commodities tend to trade along with each other. You can also short the big Chinese stock ETF (FXI) or buy an "inverse fund" that profits when Chinese stocks fall. The symbol here is FXP.
Read more Stockhouse articles by Tom Dyson