Soros: Chinese Stocks Are Overheating

Billionaire investor George Soros said China’s stock market is “overheating” and policy makers should seek to temper its gains.

“Right now, the Chinese market is overheating and they have to slow it down,” Soros said in an interview with Bloomberg Television today at the World Economic Forum’s annual meeting in Davos, Switzerland. “It remains to be seen how successful they are.”

After surging 80 percent in 2009, China’s benchmark Shanghai Composite Index has fallen this year as the government reins in credit growth to avoid asset bubbles and slow the world’s fastest-growing major economy.

The founder of the $25 billion hedge-fund firm Soros Fund Management LLC said there is “no attractive alternative” to the dollar, noting the U.K. is in “worse shape” than the U.S. and the euro has its “own problems.”

Soros repeated that the yuan is undervalued and allowing it to strengthen would be a “very appropriate thing” for the Chinese government to do. “If they don’t do it, there will be increasing pressure from the United States,” he said.

His concern about the value of Chinese stocks reflects the results of this month’s poll of investors and analysts who are Bloomberg subscribers, which showed 62 percent of respondents view China as a bubble. Three out of 10 investors said the country posed the greatest downside risk, ranking it the second- riskiest market behind the European Union.

Greek Deficit Woes

Greece will tackle the EU’s largest budget deficit without leaving the 16-nation euro area, Soros said. “I’m actually confident they will make it,” he said, adding that the alternative of quitting the single-currency bloc would be more painful than paring the debt.

Soros said the world economy remains at risk of a double- dip recession, citing any premature reversal of economic stimulus by policy makers as a trigger for a renewed slump. “It might dip again if you withdraw the stimulus too soon,” he said.

The investor who made $1 billion selling the British pound in 1992 urged policy makers to coordinate their regulation of finance or risk a splintering of markets.

“If we fail to do that, the global markets are going to break up,” Soros said. “Unless you have these common rules, each country is going to protect itself.”

(Bloomberg, January 28, 2010)

Chinese Central Bank Governor Zhou Xiaochuan Pledges Fast, Forceful Policies for China Growth

By Li Yanping and Luo Jun, published on Bloomberg.com, March 6, 2009

Chinese central bank Governor Zhou Xiaochuan pledged fast and forceful policies to restore confidence and prevent the global financial crisis from deepening the nation’s economic slump.

“If we act slowly and less decisively, we’re likely to see what happened in other countries: a slide in confidence,” Zhou said at briefing in Beijing. The central bank has “ample room” to fine-tune monetary policy after a record surge in lending in January, he said.

The central banker said he saw “signs of stabilization and recovery” in the world’s third-biggest economy, echoing Premier Wen Jiabao’s confidence that the nation’s 8 percent growth target for 2009 remains within reach. Collapsing exports because of the global recession have dragged growth to the weakest pace in seven years and cost the jobs of 20 million migrant workers.

“This isn’t the time to be cautious with the measures you roll out, it’s time to overdo it,” said Dariusz Kowalczyk, chief investment strategist at SJS Markets Ltd. in Hong Kong. “The outlook for the global economy has deteriorated dramatically.”

The Shanghai Composite Index closed 1.3 percent lower on concern that the global recession is deepening. The yuan was little changed against the dollar as of 4:48 p.m. in Shanghai.

Premier Wen restated the 8 percent target in an annual speech to China’s parliament yesterday, the equivalent of a U.S. State of the Union address.

Slump in Confidence

Fast and forceful policies are preferable to “prevent confidence slumping during the financial crisis,” Zhou said.

China’s confidence contrasts with U.S. Treasury Secretary Timothy Geithner’s warning yesterday that his nation’s recession is deepening as it starts a $787 billion stimulus program of public works.

China’s official manufacturing index rose for a third month in February, from a record low in November. Initial public offerings of shares may resume, the nation’s securities regulator said today. Wen has cited growth in power output and consumption, loans and retail sales as positive signs.

Chinese banks doled out a record 1.62 trillion yuan ($237 billion) of loans in January and more than 800 billion yuan last month, Liu Mingkang, chairman of the China Banking Regulatory Commission, said in Beijing yesterday. The regulator plans to conduct spot checks of bank loan books to “ensure quality of growth,” Liu said.

Lending Quotas

Loans and money supply may have grown too quickly, Zhou said, after China cut interest rates, scrapped quotas limiting lending and pressed banks to support a 4 trillion yuan stimulus package. The jump in lending exceeded the central bank’s expectations, he said.

The government will study the results of its existing stimulus package before deciding whether to take any new measures, Zhang Ping, head of the National Development and Reform Commission, said in Beijing today.

The People’s Bank of China cut interest rates five times in the final four months of last year, including the biggest single reduction since the 1997-98 Asian financial crisis, leaving the benchmark one-year lending rate at 5.31 percent. There have been no cuts in 2009.

China needs “stable and relatively fast growth” to create jobs, boost incomes and ensure social stability, Premier Wen said yesterday.

Not everyone is convinced that China will meet its 8 percent goal.

Lower Growth Forecasts

The 6.8 percent gain in the fourth quarter was down from 9 percent for all of 2008 and 13 percent for 2007. The International Monetary Fund forecasts the economy will grow 6.7 percent in 2009, the least in almost two decades.

Economist Kowalczyk sees a 6 percent expansion this year and warns that surging unemployment may undermine social stability if the government fails to do more to boost growth.

China’s exports may have fallen 20 percent in February from a year earlier, the 21st Century Business Herald newspaper reported today, citing an unidentified trade official. Imports may have also fallen 20 percent last month, it said.

The nation’s trade surplus for February may be $7 billion, the newspaper reported. That would be less than a fifth of the size of January’s surplus.

“China’s economic conditions may appear less dismal than its Asian peers, but the government’s growth target of eight percent seems too optimistic,” said Sherman Chan, a Sydney- based economist at Moody’s Economy.Com.