George Soros Compares Current Chinese Crisis to 2007-08 U.S. Crisis

George Soros has been very vocal on all challenges facing the European Union. He has been giving his opinion on how the crises would have been avoided in the first place and how they can now be solved. Soros has a history of speculating the currencies and in January 2016 predicted a financial crisis basing his predictions on the global currency, commodity and stock markets state. He also spoke on the sinking Chinese Yuan.

According to Soros China has a significant adjustment problem on which can be quantified as a crisis. He compares China’s current problem with the problem the United States had in 2008 before the collapse of the credit markets that led to a global recession. In an Asian Society event held in New York, Soros says that Chinas growth in credit as reported in March should be a warning sign.

The increase in credit by 2.34 trillion Yuan exceeds by far the median forecast of n1.4 trillion Yuan in a survey by Bloomberg. This shows that the China government is prioritizing growth of economy without concerns for the growing debt. George Soros says that credit growth also fueled the 2007-08 crisis in the U.S.

Soros has found himself in a war of words with the Chinese government before. In January at the World Economic Forum held in Davos, he made the same predictions against Chinese currency which were refuted by Chinas Xinhua news agency. According to the news agency on Soros had made the same predictions before but they had not come to pass.

Other problems that George Soros say are facing the Chinese economy are a banking system with more loans than deposits, and bank to bank lending which adds to the uncertainty. These problems have been deferred and can still be postponed for some other few years but will not stop the problem from growing.

The head of Asia Pacific at Fitch Ratings, Andrew Colquhoun is also worried by Chinas growth in borrowing. In an interview in New York, he said that the one thing that has been driving the recovery of the economy could end up destabilizing it. This is because China is growing an already unsustainable debt. Fitch has rated Chinas debt at A+. This is the fifth highest grade and is only a step lower than the ratings given by Standard &Poor. Colquhoun said in the interview that there is a loss of confidence in China’s government commitment to structural reforms.

Not everyone though has agreed with George Soros on his Chinese predictions. Mahathir Mohamad, Malaysian Prime Minister, has disagreed with Soros saying that he is out to wreck the economy of the region. But Soros has maintained his stand on the Chinese economy. He is, however, positive on Chinas policy on the foreign exchange. Soros says the efforts to link the Chinese Yuan to other currencies rather than the dollar only are healthy and diminishes the threat of competitive devaluation. According to Soros, the growth in cooperation between China and the U.S. will calm the markets too.
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