A recent prediction by George Soros about the state of China’s economy has painted a picture of an economy headed to a financial crisis quite similar to the one of 2007 – 2008 that nearly brought banks to their knees and left many jobless. George Soros ascertains that the symptoms are already there and if control measures are not taken it could spell doom on https://www.project-syndicate.org/columnist/george-soros for the country’s economy which is the second largest in the world.
George Soros who was born in Hungary is famous for netting $ 1 billion in 1992 after predicting that the United Kingdom would be forced to devalue its currency. George Soros is also a successful businessman and is the founder of Open Society foundations as well as Soros Fund Management. He has over the years managed to net a fortune by making wagers on markets. It is for this reason perhaps that prediction of china’s economy has caused such a commotion with the Chinese government quick to water down the prediction. George Soros’ experience in the market and his prowess as an investor makes his words more than a mere banter.
According to George Soros, China’s credit growth figures on nytimes.com are a clear indication of where the economy is headed with the latest measure being 2.34 trillion Yuan which exceeds the median forecast of 1.4 trillion Yuan. The reason for this is believed to be growth being prioritized of debt control. When lending is uncontrolled, banks tend to grant credit even to subprime borrowers who may default on their obligations. Over borrowing also brings about a situation where debts exceed the money deposited as banks focus more on growth. This creates a volatile environment on opensocietyfoundations.org which is unpredictable. The new credit in China has boosted the growth of the property sector which is not unlike the US environment in 2005 – 2006 before the crisis. Both the credit status of china’s economy as well as the prevailing market conditions such as the booming property sector bare resemblance to the prevailing conditions before the financial crisis.
Even as George Soros makes his prediction, he is optimistic of China’s foreign exchange policy which links the Yuan to several other currencies rather than just the dollar. Additionally, the threats associated with competitive devaluation have also drastically reduced. George Soros also cites that growing cooperation between China and U.S. as resulted in calmer markets. However, despite this and china’s Chief Economist’s reassurance that the economy is probably better than forecasted by some economists, the Volatility index, also known as the fear gauge, has been surging this year which basically means that the investors will be keeping a wary eye on China lest they be ambushed by another financial crisis.