George Soros has been watching China and its markets very closely in recent months. He recently spoke in Sri Lanka at an economic forum and explained that he is very concerned by what he is seeing out of China right now. Given that George Soros is the head of Soros Fund Management LLC and is one of the wealthiest individuals in the world, when Soros warns of economic disaster, experts all over the world tend to listen very carefully. That is why Soros’ issues with the state of the Chinese economy are becoming major headlines recently and continue to have global investors very weary of the future of Chinese markets.
One of the most concerning statements that Soros has made recently is that if the country stays headed on its current path, it is likely headed to a disaster similar to what we experienced in the U.S. back in 2007 and 2008. At the heart of the problem for China, according to Soros and many other global investors, is that China has not yet adjusted completely to its new growth model. The country used to thrive as a manufacturing giant and was a mecca for investors. Now, China has shifted to more of a services and consumer economy, which the government has not being doing a great job so far of easing into. This year started off with a quickly decreasing yuan, which resulted in a $2.5 trillion wipe out in the value of global equities so far this year. Adding to this concern, trading was halted on the Chinese markets earlier this year. This is totally shaking confidence in Chinese markets and Asian markets more generally.
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Across the board, measures of volatility are through the roof in China. Even with the government already cutting interest rates in China to record lows, this still does not seem to be enough to hedge off the looming economic crisis in China. The government of China has also been pumping tons of money into the economy. In particular, this worries Soros greatly because he says it is a sign that the government of China is not focused at all on debt reduction and is doing the wrong things to try to stabilize the economy. More broadly, Soros says he lacks confidence in the government of China to understand the precarious position that its economy is in right now. Because of this, Soros thinks the Chinese government is unlikely to revert course quickly enough to stop a major crisis. Although the Communist Party of China has previously announced that it will work to increase the convertibility of the yuan by the year 2020, it has made little progress in this direction so far, according to Soros. If the ruling party of China continues to make promises that it simply cannot or has not intention to keep, then investors all across the world will lose even more confidence in the country’s ability to come back from the brink of disaster and avoid a total crisis soon.