When asked about what keeps him awake at night over the Chinese economy, George Soros points to the surging credit market. Bloomberg recently presented George Soros’ predictions regarding the Chinese economy, which remains the second largest economy in the world. It is precisely the size of the Chinese economy that makes its government’s economic policies the subject of such a high level of scrutiny for the rest of the world. As a hedge fund manager and widely consulted economist, Soros is an expert at spotting international economic trends, especially in the area of international financial markets. In light of George Soros’ proven track record of making revolutionary, sound investments and speaking and publishing in prestigious media outlets, the fact that Soros is sending out dire warning signals is compelling enough that the international finance community is taking serious notice.
In analyzing mounting debt and surging credit markets in China, George Soros says there are striking parallels between the Chinese economy and what the U.S. economy looked like right before the economic crash of 2007 and 2008. Given that much of the country is still feeling the effects of the latest U.S. economic crisis, hearing that there are parallels between the situation in China and what happened in the U.S. is sending its fair share of shock waves throughout the international community. For starters, George Soros points to the housing market in China and shows that the numbers are booming. This is just what occurred in the U.S. housing market immediately preceding the crash of 2007 and 2008. In addition to the boom in the housing market, Soros says that the gravity of the mounting level of national debt in China is alarming. In a bad policy move, according to Soros, the government of China has been throwing money at extending the country’s credit and attempting to backstop practically failing enterprises. What the government of China should have been doing with that money, per Soros, is paying down its debt that has been piling up at an increasingly drastic rate.
In understanding the situation in China, Soros says he has examined the Chinese yuan and the reports from March of this year about the levels of credit extension. With far greater levels of credit extension of yuan from the Chinese government than expected, Soros thinks that the Chinese government is sending a message that propping up economic growth is a higher priority than managing the debt effectively. Soros says another phenomenon that should make investors nervous is that he sees evidence that Chinese banks are lending to other Chinese banks and simply shifting extensions of credit around. Soros says that this only serves to delay the inevitable, which is a total economic meltdown in China.
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