US billionaire, George Soros, said that the current Chinese economy closely resembled that of the United States before the 2008 global recession. He reiterated that the increasing debt financing experienced in the Chinese economy is a recipe for disaster even as the Chinese reputed his claims as mere hearsay.
The Chinese economy on http://www.bloomberg.com/news/articles/2016-04-20/soros-says-china-s-debt-fueled-economy-resembles-u-s-in-2007-08 recorded growing credit figures in March, 2016. Soros said that this should be taken as a serious warning sign while speaking at an event commemorating Asian Society in New York. The Chinese government has been seen to prioritize economic growth over reducing the amount of debt. George Soros said that the current growth experienced in China, which is fueled by credit financing, is reminiscent of what happened in the US before the 2007/2008 economic recession hit.
Uncertainty in the Economy
Soros made his fortune by betting wisely in the financial and stock markets. He founded Soros Capital Management on https://www.opensocietyfoundations.org/people/george-soros and grew it steadily over the years to earn him over 24 billion dollars in net worth. Today, he is ranked as one of the wealthiest individuals alive. His hedge fund has earned a steady 20 percent in annual growth since 1969 up to 2011. The growth was fueled by excellent prediction of the markets, excellent managerial skills and hard work. George Soros is known for pocketing $1 billion dollars from the short sale of the UK pound.
Soros revealed that he was betting against the Asian currencies because with what is happening in China currently, a hard landing is inevitable. George Soros said this back in January when he was speaking in Davos at the annual World Economic Forum. However, Xinhua news agency that is run by the Chinese government refuted Soros’ claims in an editorial alluding to the fact that he had made the same predictions previously but they never came to pass.
Soros said that it was not a good economic indication that the Chinese banking system currently has a huge number of loans compared to deposits. Another source of uncertainty in the Chinese economy is the fact that some banks are currently borrowing from others creating more instability. He said that even though currently the problem is being management by deferment, it is increasing at a high rate.
The recent surge in the Chinese real estate sector saw a boom in new credit that has allowed it to rebound. The prices of new homes in Shenzhen rose by 62 percent. Soros said that the Asian Giant’s economy was entering a parabolic cycle whereby, the surge in credit financing was capable of derailing the whole economy. However, Soros was positive about the Chinese foreign policy stating that the linking of the Yuan to an international basket of currencies was a healthy development.
Read more: George Soros says that the Chinese Economy is headed for a Recession