As the fast-growing economy now deals with a lending bubble, Chanos told CNBC's " Squawk Box" on Thursday his long-running bearish outlook is now coming to fruition. On Wednesday, the Chinese government vowed to cut taxes on small firms and said it would boost railway construction. Chanos said China has rolled out such "mini-stimulus" programs for years.

"One has to keep in mind, if you're a Western investor in stocks and bonds in China, you are investing in a scheme, not a market," Chanos said. "This is important. You are basically providing capital to them and you might not see any profits or dividends from them."

The country still houses massive stretches of unoccupied residential complexes, with three to six years of unsold supply left over outside of Beijing and Shanghai, Chanos said. Chinese growth figures don't account for sales, so the country's enviable growth rate includes construction

projects left empty, Chanos said. China fueled its construction boom largely on credit.

"Anybody who thinks that can't collapse because of too much lending has not looked at economic history," Chanos said.

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Positions against China make up about 20 percent of his short-only portfolio, Chanos said.