As one of the thirty richest men in the world, financier-philanthropist George Soros is a person whose words deserve to be listened to when it comes to predictions about the economy. Since 1970 the Soros Fund Management has been one of the world’s most successful hedge funds. Soros’ Open Society Foundation on marketrealist.com has given away some $11 billion dollars in philanthropic grants over the past 23 years. George Soros knows the global market.
Hence it is all the more disturbing that Soros has been drawing parallels between the Asian market’s current situation and the state that the US economy was in just before the 2008 recession. Back in September 2015, George Soros drew attention to the European Union’s problems with Greek debt, likening it to the run-up to 2008. In January of this year, Bloomberg.com reported that George Soros was warning of similar trends visible in Asia, with China devaluing its currency in the face of the falling value of the yuan and having to intervene in market trading to prevent a catastrophe. In a recent article, Bloomberg reports that Soros has repeated his warnings, this time targeting the issue of China’s current debt.
Read more: George Soros Likens China’s Banks to Those of USA in 2007
Soros’ warnings about China’ situation follow news that the Chinese government had created $362 billion (2.34 trillion yuan) in new credit during March, far more than the predicted 1.4 trillion yuan. Clearly the Chinese government is eager to spur on economic growth by funding new enterprises rather than dealing with existing debt. But is this really what’s happening? Soros says that, in fact, the new money is just helping bad debt stay afloat and shoring up existing businesses that are already running at a loss. It is precisely this state that is reminiscent of the situation in the United States in the months prior the financial crisis of 2008: loads of bad debt and little hope of legitimate recovery and genuine growth.
Chinese state media haven’t been slow to reject Soros’ warnings. They point to the surge in the price of new homes in China, with such growth spurred on by the new available credit. But this is precisely what makes Soros nervous: the banking system in China has more loans than deposits, forcing banks to loan to each other. With the Chinese financial quarter itself feeling unstable, others have begun to grow insecure. Standard and Poor’s and Moody’s, for example, have both cut China’s credit rating since March. Soros also points to capital outflows from China. As the government’s anti-corruption campaign shows no sign of slowing down, wealthy Chinese individuals have sought to diversify their holdings and to get their money out of the country to some safer haven.
As the Chinese government props up its own economy by increasing state involvement, the global economic forecasters are not wildly confident in the situation. It may not be a bad idea to listen in this case to George Soros’ predictions.
Find out more about George Soros and China on: