Billionaire investor George Soros, at an Asia Society event in New York, deliberated on the Chinese economy and its resemblance to the US market. George Soros believe that the boom in credit spells an impending doom for the Chinese economy’s (FXI)(YINN)(ASHR). The bull market might have been experienced up to the end of spring, but now the bear market has begun.
On December 1st, the Chinese market gained at the end of trading. This resulted in the IMF granting reserve currency status to the yuan. This move indeed made investors to become positive about the market thus closing hire on that day. But after that, the market on https://en.wikipedia.org/wiki/Soros_Fund_Management has been on a roller-coaster. There was a crash in August and since then Chinese equity has been trying to regain strength.
From a buying spree when the market was rising at a very high rate. On June 12, The Shanghai Composite index was at the 5,166.35 that day. Then after a while the gushes changed to fear and panic and the market crashed down, and on July 10th it was 3,877.80. the first quarter of the Chinese economy grew 6.7%. this growth in GDP was as a result of rise in credit facility. George Soros sees this trends as similar to the US in 2005 and 2006. In the US the real estate prices started to form a bubble. The script here as Soros say is the same, and the problem will be bigger in time.
The phase of the credit cycle occasions a cyclical wheel that repeats its self, expansion- downturn-repair-recovery. George Soros says this bubble will keep growing to become too big such that it will be unsustainable and feed itself just like the United States in 2015/2016.
Expansion phase entails consumers getting loans which in turn improves business. The credit then spreads as more borrowers get access to loans and credit increases. This process on www.valuewalk.com/2016/05/george-soros-broke-gbp-trade-century/ improves business but also creates an asset bubble. When it burst there is always the risk of increased defaulters and credit starts to contract. This trends are speculated in china. The China Banking Regulatory Commission has already said that it would not cooperate with six mortgage brokers for a month for violating lending policies.
A per a Bloomberg survey, Qu Hongbin, he largely agrees with George Soros statement. Although there are doubters of Soros statement he speaks an experienced investor. His predictions might not come to pass but can be used as a warning to avert an impending crisis.
George Soros is an investment heavyweight and based on experience is easy to assume his predictions holds a lot of weight. The money supplied by banks keeps bad debts and loss-making enterprises afloat, if this keeps on happening it could lead to a serious economy crisis.