Economic Collapse: This Is Keeping George Soros Up At Night

George SorosGeorge Soros Is Worried About This

China’s state media has warned billionaire investor George Soros against betting on falls in the value of the Chinese yuan (CNY) and the Hong Kong dollar (HKD), amid widespread worries over a possible Chinese economic collapse. China’s fourth-quarter economic growth hit its lowest point since the global financial crisis of 2008, which has added pressure on Beijing to regain investors’ confidence after its policy missteps aimed at trying to control market behavior.

George Soros’ challenge against the yuan (renminbi) and Hong Kong dollar is unlikely to succeed, “there is no doubt about that,” warns the People’s Daily overseas edition in a front-page opinion piece on Tuesday. (Source: “China’s state media warns Soros on betting against yuan, HK dollar,” Reuters, January 26, 2016.) The People’s Daily may have targeted Soros, because the financier and self-styled philanthropist is betting against the renminbi.

In Davos, where he attended the World Economic Forum last week, Soros confided that the Chinese economy would have to confront an inevitable “hard landing.” (Source: “Katherine Burton, Soros Says China Hard Landing Will Deepen the Rout in Stocks,” Bloomberg, January 21, 2016.)

Soros did not explain exactly how hard a landing China would face and whether or not this could take the form of total Chinese economic collapse. However, while most economists expect China to continue growing at about 6.8%, he believes that China’s current economic growth is 3.5%. Soros has also suggested that China cannot sustain its debt, which together with the growing problem of capital flight—some $843 billion—indicates the imminent hard landing. (Source: Ibid.)

China Has Not Acted Fast Enough

The story goes back to 1992, when Soros was accused of speculating on the difficulties of the British pound (GBP) and Italian lira, forcing both governments to perform acrobatic recovery maneuvers to confront the resulting sovereign debt crisis.

Soros made $1.5 billion when he exploited the weakness he noted in the British pound and several other European currencies against the Deutsche mark, seeing the former as overvalued against the German currency. (Source: “Forbes Flashback: How George Soros Broke The British Pound And Why Hedge Funds Probably Can’t Crack The Euro,” Forbes, July 7, 2015.)

“They bet that the politicians and central banks could not much longer maintain artificially high exchange rates in the interests of European unity,” says Soros. (Source: Ibid.)

That speculation—which has never been officially proven—is said to have earned him a billion dollars. Now, the People’s Daily, the most widely read newspaper in China, is accusing him. (Source: “Op-ed: Think twice before declaring war on Chinese currency,” People’s Daily, January 27, 2016.) Perhaps identifying in his role as currency speculator, a useful lightning rod to deflect the government’s responsibility in the fact that the yuan’s value has fallen five percent since last August.

China, whose government still exercises significant control on a state organ such as the People’s Daily, is keen on assuring U.S. investment funds and major investors that the yuan is still a safe currency. To this effect, the central bank of China has recently set aside some of its foreign exchange reserves, spending hundreds of billions of dollars to prevent the yuan from dropping further.

Meanwhile, the Financial Times argues that the Chinese have waited too long to deal with the transition from the trade surplus growth model. Thanks to booming exports through the competitive devaluation of the currency, the county has failed to address growing domestic demand. (Source: “Davos 2016: The 4 big themes facing the World Economic Forum,” Financial Times, January 19, 2016.)

Meanwhile, the People’s Daily has a warning of its own for Mr. Soros. It suggests that Soros’ attacks against the yuan—and other Asian currencies—may encourage Beijing to seek financial cooperation with other countries in the region: “As current East Asian currency cooperation mainly focuses on currency swaps and repurchases, Soros’ attack on Asia will be an opportunity for China and other East Asian economies to upgrade their monetary cooperation amid the turmoil in emerging markets.” (Source: “Op-ed: Think twice before declaring war on Chinese currency,” People’s Daily, January 27, 2016.)

This Is What the Media Isn’t Telling You

The Chinese press’s accusations against Soros have not been proven, but the weaknesses it has identified in the yuan are the ideal territory for a master of profit and exploitation of Soros’ caliber. Like few others, Soros has shown how to profit from a bubble. Over the past few years, Soros seems to have wanted to appear more as a philanthropist than a mere financier.

After the collapse of the Thai Baht in 1997, in a speculative wave that then Prime Minister Mahathir Mohammed of Malaysia accused Soros of triggering, an economic crisis with high social costs broke out. Soros is therefore a convenient target, especially in Asia, to deflect responsibility for financial and economic errors.