Economic Reform Will Spur Political Change, Soros Says Published: 2013-9-10 15:06:46

The country's economic restructuring will bring fundamental changes to its political model, financier George Soros says.

"The undervaluation of the renminbi was a secret weapon of the government because it gave them a way of creating productivity of labor without the people feeling the pain," the 83-year-old Hungarian-American billionaire said in a closed-door meeting during the Davos 2013 World Economic Forum.

As a result, "the central authority accumulated assets from abroad rather than collecting it in taxes."

Soros argued that that a shift from exports to domestic consumption would prompt changes in the country's political model. He said that for China to continue its growth, it must move towards a consumption-based economic model rather than rely on exports and investment

The contribution of consumption to the country's GDP rose from 39.6 percent in 2008 to 51.8 percent in 2012, the National Bureau of Statistics says.

Actions from the government might be a mixture of both "political reform to give people greater influence over political decision-making" and "other repression or perhaps seeking external conflicts to maintain the cohesion of the country," Soros said.

Some of the conflicts China was involved with might be further sharpened, he said. "I'm particularly concerned about the tension between Japan and China," he said.

Sino-U.S. relations were central for the future of the world, Soros said. Whether they will be based on cooperation or confrontation is the most important question.

In addition, the financier said a currency war was on the horizon. Since the European Central Bank (ECB) is "the only major central bank that is not engaged in quantitative easing, a currency war "may eventually push the ECB to change its posture because the result of the overvaluation of the euro will be a greater economic decline."

Posted in: Economy

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