George Soros often times sees the world, and the economic forces that move this world, in a different way than most every other investor. He has a long history of calling things correctly, and that is largely based on his keen eye for accurately assessing what is going on across the globe. Currently he is concerned that China’s recent fiscal woes are going to leak into the international economies, and bringing with them trouble. In the fullness of time, it might be worse than what we have already seen. The currency devaluation in China is also causing problems for underdeveloped countries who are struggling to come back from negative interest-rate situations, and many of whom do business with, and count on the financial strength of China. They are particularly vulnerable in this scenario.
China is undergoing a shift from manufacturing to consumption, and from investment toward providing services. Mr. Soros sees a problem reported by Bloomberg.com that he saw in 2008 starting to take hold in China. Add to this that the problems in Greece paled in comparison to the near mortgage and bank-bailout wipeout in the United States in 2007, which totally gripped the nation by 2008 as investment banks folded.
There are also caveats in the volatility measures of the major indexes across the world. It is like the world does sense something is coming, and as China prepares to become more of a meaningful player on the world’s economic stage, and with their Communist Party pledging currency convertibility by 2020, their overall economic status remains weak, largely attributable to transitioning. With China being the second largest economy in the world, the gyrations as they move through market cycles will be felt in all corners of the world. It used to be said that when the United States markets sneeze, the markets around the world catch a cold. I think it is fair to say that China is now rising to such lofty levels of capitalism and economic influence.
George Soros believes that China is undergoing a major adjustment in their financial status. With the “we are taking our toys and going home” closure of the Chinese stock market amid a major sell-off in January, the world will continue to grapple with the freehand and why China seems to want to play as long as things are going their way. Mr. Soros feels China faces a major challenge, and transitioning through this challenge is going to put them in the position of weathering the type of storm we had in 2008 in the United States. He is likely right, as he has a history of being so.