China’s debt-fueled economy
Kenneth Rogoff said, “If you want to look at a part of the world that has a debt problem look at China. They’ve seen credit-fueled growth and these things don’t go on forever.”
China’s surging new credit
According to data from the People’s Bank of China, China’s (FXI) (YINN) (MCHI) new credit growth is increasing. In January 2016, new monthly loans stood at 2,510 billion yuan, the highest since August 2015. In August 2016, new monthly loans stood at 948.7 billion yuan. The surging new credit is a warning sign for global investors.
George Soros’s view on China
Billionaire investor George Soros has expressed concern several times about China’s (ASHR) (MCHI) increasing new credit. He also said that China’s present situation resembles the US (QQQ) (SPY) before the 2008 credit crisis. The rise in new credit suggests that the Chinese government is prioritizing growth instead of controlling debt, according to Soros.
He added that the Chinese property and construction bubble could grow and feed itself like in the United States in 2005–2006. Soros thinks the bubble will keep growing until it becomes so large that it’s unsustainable. He also pointed out that monetary stimulus can extend the timeframe, but the bubble has to burst eventually.
In the next part of this series, we’ll analyze China’s debt-to-GDP ratio and how it’s impacting economic growth.