George Soros on the Chinese debt-fueled economy
George Soros is an American based billionaire and philanthropist who has had great success in the financial markets. In recent weeks, George Soros has talked about the financial and economic situation that China is experiencing. The Chinese economy on opensocietyfoundations.org is closely tied to the global markets; therefore, investors need to be very cautious about the investment decisions they make.
Over the years, China has experienced consistent growth. The Chinese economy has got to a point that they are now struggling to find new growth. Coupled with their currency devaluation, the problems China is experiencing are being transferred to the rest of the world. George Soros said this while speaking in Colombo and added that returning to positive interest rates is a challenge for the developing countries.
One way that has kept the Chinese economy stronger is pumping of investment into the economy through borrowing. George Soros looked back at the U.S 2007-08, and that situation is what China is currently experiencing. The Chinese economy is debt-fueled, and this is warning sign that they may experience what the U.S experienced in 2007-08 that led to a spurred global recession. Citing the figures, China made a borrowing of an estimated 2.34 trillion yuan in a period of one month, which exceeded the median forecast of 1.4 trillion by Bloomberg. What this means is that the government is growth focused and is giving little attention to its growing debt.
The real facts that are not visible are that these borrowings are what are keeping the bad debts and loss-making enterprises alive. According to George Soros, the Chinese banks have more loans than deposits. To make matters worse, they are experiencing difficulties with both their assets and their liabilities. The banks are lending each other, and that is not a good sign. It is an indication of uncertainty and liability according to George Soros. What China is doing is deferring the problem from one year to another and this is making the matter worse as it grows at an exponential rate.
George Soros has also cited the real estate and property sector. The price of houses keeps on increasing on georgesoros.com, mainly in its major cities. For instance, the price of houses rose by 62 % in Shenzhen. The industry is experiencing a bubble and will be able to sustain itself for a few years. This is the same situation that happened in the U.S in 2005 and 2006 right before the global recession.
Referring to these cases, George Soros says that China has major problems that it needs to address with its economy. If not addressed it will lead to the same situation that the U.S experienced in 2008 that led to a global recession.