China wants to live the American dream. The American way of buying now and paying later has caught on in the capitalistic inspired country. The Chinese want it all, and it seems the government is willing to spend whatever it has to spend in order to prove China should be the most powerful economy in the world. But the price for trying to achieve that goal is an expensive one, and according to billionaire George Soros, China is on the verge of paying that price.
George Soros, the hedge fund genius, humanitarian, and London School of Economics graduate, has been warning the world that China has been walking a financial tightrope for several years. The manufacturing sector of China’s economy has always supplied the fuel for economic growth, but it has lost steam due to raw material issues, competition and labor unrest. The government has been trying to replace the manufacturing losses with a consumer-driven economy just like the United States, but there has been one issue after another that has hurt that process. George Soros the man that broke the Bank of England back in 1992 when he bet that the pound sterling had to depreciate is making a similar bet now. Soros is betting that Chinese debt is going to pull the value of the Chinese yuan down, and the yuan is going to depreciate by more than 30 percent over the next two years.
At a recent Asia Society event in New York City Soros said China’s banking system is in trouble. Banks have more loans than deposits, and there is growing concern that the banks are lending money to each other to stay solvent, but the credit growth cycle seems to be spiraling out-of-control. Soros told the audience that China could continue to expand its economy using credit, but it is only a matter of time before the system implodes. The surge of new credit has helped the housing market, however. Home prices in the major metropolitan areas have increased by more than 60 percent. That is exactly what happened in the United States in 2005 before the credit meltdown started.
Read more: China’s Banking System Is In Trouble And A 2008 Type Meltdown May Be Next According Investment Advisor George Soros
The other issue that concerns Soros is China’s use of capital reserves to keep the banks and their stock market running at full creditworthy speed. China’s capital reserves have been shrinking at an alarming rate, and Soros thinks that trend will continue in order to keep the Chinese economic image intact. But it is only a matter of time before all hell breaks loose and the country throws the rest of the world into recession mode. Half of the world is in that mode now, and the other half is knocking on the door of another Great Recession, according to Soros.
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