Shorting China Stocks Part of a Bigger Plan?

China has not plunged yet as Mr. Chanos and some other short sellers said it would. Of course 2010 was a good year for the short sellers, Chinese stocks performed poorly. Volatility in the China space was high. Because short-selling is mostly prohibited in mainland China, it is practical to bet against China and Chinese companies via Hong Kong and New York.

(Click to enlarge)

Total short positions on Chinese stocks listed in America or Hong Kong have not jumped in the past year and are at fairly low levels (see chart).

But more and more hedge funds are betting against companies. Some of the more heavily shorted Chinese stocks listed on NASDAQ, are considered by pessimists to have poor-quality profits and to be hard to understand (see Highest Short Interest list)