Speaking on the topic of China at the Asia Society Roundtable, billionaire financier George Soros warns that China’s debt-fueled growth is bears “eerie resemblance” to conditions preceded the 2008 financial crash.
“It’s similarly fueled by credit growth and eventually unsustainable extension of credit. But it feeds on itself, and it has a lot to do with real estate,” said Soros.
“Of course since it feeds on itself, it can reach the turning point later than anybody expects. This happened in America where, you know, 2005/2006 a lot of people like (former chairman of the Federal Reserve) Paul Volcker saw it coming, but it went on to 2007/2008.”
Soros said that most of the danger at a precipice is when the credit cycle reaches the point where “more and more credit is needed to sustain growth.”
“(China) re-lit the furnaces. They also induced a construction boom and real estate boom. It is a bubble but it can grow and it can feed on itself. And markets are not infallible and they buy into it and of course that is another factor that makes it grow,” he added.
“(Stimulus) can buy you additional time but it makes the problem that much bigger. That’s where we are.”
According to Reuters, Chinese banks made $211.23 billion in new local-currency loans in March. They also noted that social financing rose to 2.34 trillion yuan ($360.78 billion) in March from 780.2 billion yuan in February as the China’s central bank tries to stimulate the economy to halt slowing growth.
“It’s a warning sign because it shows how much more credit is needed to stop a decline,” Soros said, commenting on the March credit data.
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