NEW YORK TheStreet -- China is now the engine that runs the world, relegating the U.S. to second fiddle in both economic power and global influence, says George Soros, the billionaire investor renowned for his ability to anticipate and capitalize on emerging economic trends.
"The shift is phenomenal - I have never seen anything like it," Soros said at a New York event hosted byReuters. "There is no parallel because the rise ofpower typically takes decades."The
financial crisis in the U.S. accelerated the power transfer by shutting down the U.S. consumer, whose historically voracious demand previously powered the global economies. Now China is in the driver's seat and the world is running on a supply-side engine, Soros said.
"The Chinese economy has become the motor of the
global economy," Soros said. "This is a smaller motor (than the U.S. consumer) and that's why the global system is not growing as fast."
The transfer of wealth is the result of the U.S. willingness to consume more than it produces and China's willingness to produce more than it consumes, Soros explained.The "state capitalism" practiced in China is based on encouraging Chinese citizens to seek riches by exploiting their cheap labor resources through exports and then the government harvests the accumulated wealth for the state by artificially holding down the value of China's currency, Soros said.
China stumbled onto a "fabulous machine" for skimming the wealth generated by its cheap labor to benefit the state by keeping its currency undervalued through a peg to the U.S. dollar, he said.
The currency tensions with the U.S. cannot be resolved easily because China will not want to do anything that breaks the "machine."