Renowned business leader and author George Soros has made a very important study concerning China’s Economy. He has made a notation that the current economy situation in China resembles that of U.S. right before the 2008 economic crisis. George Soros has warned that China may be heading into an economic crisis.
China’s Economic Situation
George Soros has been specific on the terms that made him pass this warning. He observed that the credit growth figures of China point to a downfall. China has experienced a surge of new credit last month. The country got 2.34 trillion Yuan which exceeds the expected the figure of 1.4 trillion. However, this surge in new credit for the country is a warning sign. This is because the higher than expected figure only shows that the country is focused on borrowing and increasing its debt rather than paying it.
George Soros said that China’s situation has resemblance to the U.S. 2008 crisis because of its nature of being ‘fueled by credit growth.’ He said, “Most of the money that banks are supplying is needed to keep bad debts and loss making enterprises alive.”
George Soros made a study of the banking system of China and pointed the similarities of their situation to the U.S. 2008 situation. One of the similarities is the huge accumulation of loans from the banks. The country’s banking system is the main reason why the economy might crash. This is because there are ‘more loans than deposits’. Soros explained that there was problem ‘on the assets side but also increasingly troubles on the liabilities side’.
What is currently sustaining the economy of China is the ability of banks to lend each other capital. However this capability is not a positive sign. Soros said, “Other banks have to lend to each other and that’s an additional source of uncertainty and instability”. However, since the country is deep in debt, this lending business can only last for 1 or 2 years.
The new surge in credit has favored the real estate sector. House values for new premises have gone high with an almost 62% rise compared to last year. However, this success reflects a similar situation in U.S. back in 2005/2006. This success may not last long but it may sustain the economy for some time.
Soros has pointed out the positive move of China too. He acknowledged that the country’s effort to link the Yuan to other currencies is great. According to Soros, this foreign exchange policy will greatly reduce the ‘threat of competitive devaluation’. The cooperation between U.S. and China serves to strengthen the market relations that had been on the downfall at the start of the year.
George Soros is a billionaire investor who is ranked among the richest people in the world. He has authored insightful books and articles. He is the founder and chairman of Open Society which funds charitable work in more than 100 countries.
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