The American billionaire, Mr. George Soros said that there is a similarity between the current debt-field economy in China and the United States’ economy in 2007-2008 that was powered by credit growth. China should view the growth of its credit figures in March on as a cautioning sign. The country had new credit worth 326 billion dollars (2.34 trillion yuan) in March, which was greatly beyond the Bloomberg survey’s average prediction of 1.4 trillion yuan.
According to Mr. George Soros,’ the banking system of China has fewer deposits and more loans, and it is also having difficulties in the assets and liabilities side. Some banks are struggling to an extent that they have to lend each other and that leads to unpredictability and insecurity. China keeps postponing the problem for years, but it keeps growing the more it is deferred.
The rate of economic growth in China on rose in March as the availability of new credit facilitated the recovering of the property sector. The value of houses in the first class cities has increased, whereby, there is a 62 percent annual increase in the price of new homes in Shenzhen. The real estate sector in China may however only be stable for a short time similar to that of the United States in 2005 and 2006.
The Chinese credit has attracted the attention of Andrew Colquhoun, who works at Fitch Ratings as the head of Asian Pacific Sovereigns. George Soros thinks that China’s economy is likely to be wrecked later by what is currently powering it since they are substantially accumulating debts. China’s sovereign debt is rated A+ by the Fitch Ratings.
China’s anti-corruption campaign pushes capital outflows on, and this makes investors nervous hence motivating them to withdraw their money. Despite the country’s reserves growing by 10.3 billion dollars to make it 3.21 billion in March, in has decreased by 517 billion dollars over the past year. According to George Soros, diversification needs to exist for wealth to come out. A good example of the China’s capital controls is the withdrawal of a 14 billion dollars offer that the Anbang Insurance Group Co. had for the Starwood Hotels and Resorts Worldwide Inc.
Soros supports the foreign exchange policy of China whereby they link the yuan to an expansive basket of currencies and not just the dollar. The system reduces the danger of competitive devaluation. He also suggests that the chaos in the markets have been calmed by the increasing coordination between China and the United States. The Chinese services sector is becoming stronger, but it is harder to increase its productivity than in manufacturing.
Read more: What George Soros Thinks About The Current State of Chinas’s Economy
George Soros is a business mogul, an investor, author, and philanthropist based in the United States. He is Jewish-Hungarian and is, therefore, a holder of dual citizenship of both the U.S and Hungary. Mr. Soros is the founder of the Soros Fund Management, which is a very successful business. He also owns the Open Society Foundation, which takes part in philanthropic activities.
Learn more about George Soros:
The Life of George Soros