George Soros

George Soros On China


Asia Society is the leading global organization working to strengthen relationships among the people, leaders, and institutions of the US and Asia.

See article here

H/T LST

Over the last few years, we’ve seen the Chinese government maintain high growth rates afloat through tools like shadow lending and municipal debt, which have led to the creation of asset bubbles in the country. Do you anticipate this situation changing? Is there a scenario where Beijing decides, “we’re going to let the economy slow down more drastically and it’ll just be the new normal?”

No, definitely not. What we’re seeing now is the most amount of pain the Chinese government is willing to take. They’d pretty much be able to do anything to keep growth where it is now, including reversing all the reforms they’ve talked about and cranking up debt even more. There’s no way they’re going to allow growth to slip much below the current levels —they’ll do their best to keep it at this level.

Is that because they’re afraid a slowdown would have political consequences? Or is engineering fast growth simply embedded in Communist Party operations, and is how incentives within the Party are aligned? What do you think accounts for their fear?

It’s a fear of revolution. You have to understand —the Chinese Communist Party sees revolution around the corner every single day, and that’s what they’re most afraid of. The only reason that growth is embedded in the Communist model is because of that fear. Right around the time of the collapse of the Soviet Union, or slightly before, the Chinese government decided that to avoid this fate Beijing would have to maintain growth and social stability, which, in their minds, is the same thing. They’re constantly worried about political instability, unrest, uprisings, rebellions, and revolution.

Do you think these fears are founded? 

Yeah, I do. They’re absolutely founded. If you talk to people in China, they understand very clearly that the only source of legitimacy for the Communist Party today is that they can produce growth, and without that they have no legitimacy. Otherwise they’d be thrown out, most likely in some sort of internal coup where their colleagues would get rid of them. I don’t think we’re likely to see an armed uprising, with weapons and guns, because the Party’s control of the population from the grassroots all the way to the top is very, very tight. But there could be a lot of internal strife at the top layers of the party.

One of the Party’s goals, going back almost a decade when then-Premier Wen Jiabao famously called the Chinese economy “unstable, unbalanced, uncoordinated, and unsustainable,” has been to boost consumption and making it a larger part of overall growth. How is this going? Is this plan working?

What you’re seeing is a rebalancing, of sorts — as everything slows, some things slow more than others. But is rising consumption enough to pick up the slack from the initial emphasis on investment? No, of course not. You can’t say that consumption will take over from investment. They’re reliant on each other. Because what is consumption? It’s people spending money to invest in things and make things and consume things. What you’re not going to see is a sudden, rapid, transition to a new growth model that will solve all their problems.

Have you noticed any shift in Chinese people’s attitudes optimism about the country’s economic future? Are people becoming more pessimistic?

It’s hard to make generalizations about the mood in Beijing because it changes very quickly. And it’s very hard to make broad statements about the Chinese mood in general, because we don’t have access to good census information or trustworthy polls that aren’t influenced by Chinese propaganda. It’s very hard to get good opinions about China as compared to other countries.

I’d say people are much less optimistic about the future, especially in the middle class and the wealthy. People are voting with their feet. I don’t know any wealthy Chinese friends who don’t have an exit strategy or who haven’t already left. It’s anecdotal, but you see it across the board. People are leaving in droves.

Watch the complete video of Jamil Anderlini’s appearance with his Financial Times colleagues Richard McGregor and Lucy Hornby, Orville Schell, and George Soros below.

George Soros On China

Over the last few years, we’ve seen the Chinese government maintain high growth rates afloat through tools like shadow lending and municipal debt, which have led to the creation of asset bubbles in the country. Do you anticipate this situation changing? Is there a scenario where Beijing decides, “we’re going to let the economy slow down more drastically and it’ll just be the new normal?”

No, definitely not. What we’re seeing now is the most amount of pain the Chinese government is willing to take. They’d pretty much be able to do anything to keep growth where it is now, including reversing all the reforms they’ve talked about and cranking up debt even more. There’s no way they’re going to allow growth to slip much below the current levels —they’ll do their best to keep it at this level.

Is that because they’re afraid a slowdown would have political consequences? Or is engineering fast growth simply embedded in Communist Party operations, and is how incentives within the Party are aligned? What do you think accounts for their fear?

It’s a fear of revolution. You have to understand —the Chinese Communist Party sees revolution around the corner every single day, and that’s what they’re most afraid of. The only reason that growth is embedded in the Communist model is because of that fear. Right around the time of the collapse of the Soviet Union, or slightly before, the Chinese government decided that to avoid this fate Beijing would have to maintain growth and social stability, which, in their minds, is the same thing. They’re constantly worried about political instability, unrest, uprisings, rebellions, and revolution.

Do you think these fears are founded?

Yeah, I do. They’re absolutely founded. If you talk to people in China, they understand very clearly that the only source of legitimacy for the Communist Party today is that they can produce growth, and without that they have no legitimacy. Otherwise they’d be thrown out, most likely in some sort of internal coup where their colleagues would get rid of them. I don’t think we’re likely to see an armed uprising, with weapons and guns, because the Party’s control of the population from the grassroots all the way to the top is very, very tight. But there could be a lot of internal strife at the top layers of the party.

One of the Party’s goals, going back almost a decade when then-Premier Wen Jiabao famously called the Chinese economy “unstable, unbalanced, uncoordinated, and unsustainable,” has been to boost consumption and making it a larger part of overall growth. How is this going? Is this plan working?

What you’re seeing is a rebalancing, of sorts — as everything slows, some things slow more than others. But is rising consumption enough to pick up the slack from the initial emphasis on investment? No, of course not. You can’t say that consumption will take over from investment. They’re reliant on each other. Because what is consumption? It’s people spending money to invest in things and make things and consume things. What you’re not going to see is a sudden, rapid, transition to a new growth model that will solve all their problems.

Have you noticed any shift in Chinese people’s attitudes optimism about the country’s economic future? Are people becoming more pessimistic?

It’s hard to make generalizations about the mood in Beijing because it changes very quickly. And it’s very hard to make broad statements about the Chinese mood in general, because we don’t have access to good census information or trustworthy polls that aren’t influenced by Chinese propaganda. It’s very hard to get good opinions about China as compared to other countries.

I’d say people are much less optimistic about the future, especially in the middle class and the wealthy. People are voting with their feet. I don’t know any wealthy Chinese friends who don’t have an exit strategy or who haven’t already left. It’s anecdotal, but you see it across the board. People are leaving in droves.

Watch the complete video of Jamil Anderlini’s appearance with his Financial Times colleagues Richard McGregor and Lucy Hornby, Orville Schell, and George Soros below.

George Soros On China

Source: Photo by Norway UN (New York), Flickr

George Soros

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