A few weeks ago, George Soros, the Hungarian magnate ruled once again on the Chinese economic situation and he did it with harsh words. There are too many similarities with the US economy in 2008 and they seem worrying.
The economist has spoken critically against the second largest economy of the world, asserting that the increase in China’s debt is leading the Eastern country on the brink of a financial crisis similar to that experienced by the US in 2008.
China is managing the numerous present-performing loans in its banks and, recently, it entered with conviction in the gold market, indicating once more the kind of financial concerns in which it is involved.
“There is an eerie resemblance to what’s happening in China to what’s happened here leading up to the financial crisis in 2007-2008 and it is similarly fueled by credit growth.” This is what George Soros said during a panel discussion held at the Asia Society, where he also added: “it’s eventually unsustainable. But it feeds on itself and it has a lot to do with real estate.”
The bursting of the real estate bubble in 2007 brought down many US financial institutions, with consequences that have spread around the world (which are yet to be determined), with declines in trade, investment and growth.
According to the Wall Street Journal, the amount of the total credit in the Chinese economy grew by 15.8% in March, to $ 22.4 trillion. The sum corresponds to more than double of the Gross Domestic Product, which in China amounted to $ 10.4 trillion.
Many analysts also highlighted the importance of the debt bubble. Meanwhile, the market for buyers of new homes is rising, thanks to accommodative policies held by the government.
Soros has already spoken out critically against China, but it does not seem to be the only one feeling this way. Other analysts had already bet against the Yuan in February or warned the hedge fund managers not to overestimate the economic turmoil experienced in recent months from China.
The doubts about the state of health of the Chinese economy still remain between investors and stockbrokers. The little encouraging PMI data on Chinese manufacturing published a few days ago have left more than some fear on the actual performance of the economy of China.
Despite constant assurances of the authorities and the Chinese Government on the strength of the economy of the country, the stock market traders continue to remain skeptical about the veracity of the macroeconomic data published from the Chinese Statistics Institute.
In addition to all the comments, it makes its way the thought of a real estate bubble in progress. We must therefore consider the boom in loan applications in March.
Loan requests in March amounted to 639 billion Yuan ($ 99.6 billion) out of a total of 1.37 trillion Yuan in new loans. The loans for real estate purchases amounted to a total of 440 billion Yuan, a percentage increase of 141% m/m.
Not only that. There are more bond issued by the companies in March; the number of bond amount of 695 billion Yuan, against the requests for 87 billion Yuan in February.
The measures taken by the Chinese authorities are trying in some way to calm the fears of a collapse of the economy but until China will pursue the dual objectives of the reforms and growth at the same time, the doubts about what the real priorities of the government will remain, fueling market volatility.