There are many reasons to listen to George Soros when it comes to his predictions about the danger in the Chinese economy. He has been through this before and correctly forecasted the issues the United States financial markets faced in 2008 on http://www.investopedia.com/university/greatest/georgesoros.asp. The question is whether his predictions about China bear any merit or are off base. According to recent information there are some alarming similarities between the two situations that would lead a person to believe that the Chinese economic problems are heading toward a significant problem that will rival the challenges faced in the United States eight years ago.
The Chinese government is refuting the ideas of George Soros because it negatively affects their markets and limits their financial growth. The data that has recently been revealed has been alarmingly behind the ideas Soros spoke about. The Chinese government has produced $362 billion in new credit in the month of March. That is a very high number and will make all investors sit up and take a closer look at what is happening. That is because the exact same types of bad credit situations took place before the damage of 2008 was done to the financial markets. This credit growth on https://www.project-syndicate.org/columnist/george-soros is the most significant warning sign to date for George Soros and fact that the credit in the world’s second largest economy was approximately $1.5 trillion higher than expected is a sign that the Chinese government has its focus on growth rather than bringing their rising debt under control.
George Soros sees the debt problems of China as a building problem which the Chinese banks are not addressing. They are simply deferring the reckoning of the issue off for a year or two, but he sees the day is coming that these debts will cause significant problems. There are more loans being made than deposits being received and that leads to increasing problems of a lack of assets and also on the growing liabilities side of things. The banks on http://www.profitconfidential.com/economy/economic-collapse-george-soros-delivers-grim-warning-for-investors/ have been adding to the instability by lending money to each other which has led to a revolving door of debt that eventually will land permanently causing significant issues for the Chinese economy. The debt is increasing at a significant rate and there seems to be no real plan to address the issue.
Real estate prices are another area of concern for George Soros. There seems to be a rise in home values in the cities in China and the prices have risen as much as 62% over the past year. This seems to be creating a real estate bubble, very similar to home values in the United States in 2005-06. These bubbles will crash eventually and that was one of the key factors that led to economic chaos in the United States. The damage occurs years after the choices to fund an inflated housing market.
These factors all contribute to the worry about the economy as China increases the rate that it borrowing. This is what is driving the current economy but could be the fatal flaw that derails it in the end. The debt burden has caused some investor services to cut their Chinese outlooks significantly since March. Most are looking for China to slow down its debt consumption and make some basic structural reforms that will lead to long term growth in the country.
Read more: George Soros Warns of China’s Debt Problems
George Soros is a Hungarian born billionaire who has shown a keen understanding of financial markets over the years. He has turned that knowledge into one of the biggest fortunes in the world. He guided his own hedge fund from 1969 to 2011 and posted steady growth every year. This was done because he knew how to size up economic situations and read them correctly. He was able to earn $1 billion in 1992 by correctly guessing the Bank of England would have to devalue the pound. His personal history is a reason that when George Soros speaks the financial world listens. The Chinese economy is a trouble spot for now and how a company invests their money in the region can determine their financial outlook in the near future.