George Soros was recently featured by Bloomberg regarding his perspective on the current status of the credit markets in China and their potential impact on the global economy. Soros is frequently consulted for his knowledge on international markets and overall trends in foreign currencies. In this particular situation, Soros has fairly dire words of warning for investors on https://www.opensocietyfoundations.org/people/george-soros about the state of credit extension from the Chinese government. Based on the figures from March of this year, Soros explains that the Chinese government has been artificially propping up failing enterprises with extensions of credit rather than using resources to start chipping away at the country’s mounting debts.
George Soros says that the situation with the Chinese credit markets is similar to what the U.S. experienced in 2007 and 2008 before the financial crash that rocked the international economy. Soros says there are strong parallels in an over-inflated credit market and a booming housing bubble, which will eventually burst, he predicts, when the Chinese government is unable to make good on its debts.
Part of what Soros says makes the situation in China on twitter.com seem so desperate is that there seems to be little prospect for overall growth in the Chinese economy. Given that the China maintains its status as the second largest economy in the world, the failure of its government to address the increasingly worrisome credit situation is serious cause for concern for George Soros. Although Soros does not put his finger on a potential timeline for collapse in China, he says that investors should not be encouraged by the lapse in time between major extensions of credit and more immediate signs of trouble. Soros says this is because the current system is able to feed itself for a period of time in the short term. What could really spell disaster for international markets, according to George Soros, is that there is major uncertainty and hesitation among investors who are not comforted by the current fiscal and monetary policies of the Chinese government.
While the majority of Soros’ analysis of the situation in the Chinese markets seems grim, he did say that he is optimistic about China’s current foreign exchange maneuvers on bloomberg.com. One of the policies Soros has praised is China’s move to link the yuan, China’s national currency, to a wider pool of foreign currencies, rather relying solely on the dollar. Another promising factor, says Soros, is the willingness of the Chinese and U.S. governments to work together towards smoothing out some of the bumps in the international financial markets in an attempt to put investors more at ease. However, Soros does not think that these small positive developments are enough to ease the eventual impact of the Chinese government’s lack of a consistent policy on credit.