China is now the world’s economic engine, taking the place of the US. I look at this chart of the “China 25,”which I liken to the Chinese Dow, and I don’t like the looks of the chart. FXI has rolled over and broken below both its 50-day and 200-day MAs. It this big money moving out of China’s best stocks? I’m afraid that’s what might be happening. If China crumbles, then what?
Soros “Very Cautious” on China’s Economy
02/27/10 Stockholm, Sweden – With over 10 trillion yuan in Chinese bank loans disbursed in 2009, and more trillions on the way, George Soros, chairman of Soros Fund Management, remains concerned China’s economy is overheated. In a recent Hong Kong interview he explains how a hard landing could be in the making.
“Caixin: What is your attitude toward China now? Positive or negative?
“Soros: I’m very cautious, until the economy cools off a little. When it does, I will be more optimistic again.
“Caixin: In 2009, Chinese banks issued 10 trillion yuan in new loans. The government has said there will be another 7.5 trillion yuan in loans this year, although banks loaned more than 1 trillion yuan in January alone. Do you think this unprecedented credit growth will eventually lead to overheating, inflation and harsher policy tightening? Do you worry about the potential risk of non-performing loans in the medium- to long-term?
“Soros: The overheating, the inflation, the harsh policy tightening is happening right now and it will continue to happen until the economy cools off. And with this explosion of credit, there are bound to be non-performing loans in due course. The extent depends on whether it is a hard landing or soft landing.”
We’ve seen the consequences of a credit bubble here in the US, and now we may see just how ugly a Chinese version may look. Soros goes into more detail on the bubble aspects of the Chinese economy, as well as how China’s currency revaluation may end up panning out, in MarketWatch’s coverage of froth in China’s economy.