According to George Soros, China Is in the Midst of an Economic Disaster

According to financier George Soros, China faces an economic disaster following a real estate bubble that ended with a bang last year.

In a lecture Monday at Stanford University’s Hoover Institution, the billionaire claimed that President Xi Jinping might not be able to restore trust in the struggling sector, which has been rocked by a succession of developer bankruptcies and declining land and apartment prices.

According to Soros, China’s real estate bubble was built on an “unsustainable” paradigm that favored local governments and encouraged citizens to deposit the majority of their money in property. 

The Evergrande Incident

He further stated that the government regulations intended to cool the market made it harder for leveraged real estate colossus Evergrande to repay its loans. The developer is saddled with more than $300 billion in total obligations, including around $19 billion in offshore bonds held on behalf of its clients by international asset managers and private banks.

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For months, Evergrande has been trying to obtain funds to repay lenders. Government officials have been deployed inside the corporation to oversee a restructure, but what happens next is unclear.

Evergrande has requested additional time, but some lenders appear uninterested in waiting. On Sunday, the firm said that receivers had been appointed over a Hong Kong block of property that it had pledged as security against a $520 million loan last year.

“It is yet to be observed how the authorities will manage the situation,” Soros remarked during a discussion panel on China’s developments and how the US should respond. “They may have put it off for too long because people’s trust has already been undermined.”

George Soros
George Soros

In recent years, Soros has emerged as a vocal opponent of Xi and China’s governing Communist Party. In September, the famed investor and chair of the Open Society Foundations stated that asset-management BlackRock was committing a “tragic error” by expanding its operations in China.

In addition, he has chastised Beijing for its surveillance practices and cracked down on private enterprise. 

The Chinese GDP

As per Soros, who spoke only days before the opening of the Winter Olympics in Beijing, the Chinese president now confronts challenges from the housing market. Falling prices will “convert many of people who invested the majority of their resources in real estate against Xi Jinping,” according to Soros, who added that the present scenario “doesn’t look encouraging.”

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“Xi Jinping has many instruments at his disposal to restore trust — the issue is whether he will use them wisely,” Soros remarked. Analysts have long been concerned that Evergrande’s failure might exacerbate larger dangers in China’s property market, bringing harm to homeowners as well as the wider financial system.

Real estate and allied businesses contribute up to 30% of the country’s GDP. Last year, China’s GDP increased by 8.1 percent, significantly above the government’s targets.

However, slowing growth in the last months of 2021 implies that the real estate crisis, recurrent Covid outbreaks, and Beijing’s uncompromising attitude to virus control are taking their toll. As per the International Monetary Fund, economic growth would decrease substantially to 4.8 percent in 2022.

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