Billionaire investor George Soros said China has a “couple of years” to control risks from nontraditional financing whose expansion has parallels with the cause of the global financial crisis.
“The rapid growth of shadow banking has some disturbing similarities with the subprime-mortgage market in the U.S. that caused the financial crisis of 2007-2008,” Soros said today in a speech at the Boao Forum for Asia in China. “I’m sure the authorities are aware of the dangers. They have both the skills and the resources to deflate an incipient bubble gradually.”
The comments add to concerns that the increase in credit risks triggering turmoil that would cause an economic downturn. Aggregate financing, an indicator started by the central bank in 2011 to provide a broader gauge of funding, more than doubled to a record in January from a year earlier.
“If the American experience is any guide, the authorities have a couple of years to bring shadow banking under control,” said Soros, 82. “It’s of utmost importance that the authorities should succeed. Not only for China, but also, for the world.”
Soros also said that next year will be a turbulent one with the euro at the center of the storm, and the decline in the yen and pound will probably aggravate the recession in Europe.
In 1992, Soros and his then-chief strategist Stan Druckenmiller made a $10 billion wager the Bank of England would be forced to devalue the pound, a trade that netted $1 billion.