Mega-wealthy hedge fund manager George Soros has never been shy about expressing his opinion about an investment or about geopolitics. Therefore it’s not too surprising that Soros commented on Monday, May 19th that he remains concerned about the real possibility of another world war in the not too distant future.

Soros Says China Is Major Risk For World War 3
Source: Photo by Norway UN (New York), Flickr

Soros says it’s mainly about China

Soros was speaking at a Bretton Woods conference at the World Bank, and said that much in global geopolitics depends on the health and trajectory of the Chinese economy.

He set up a straw man argument in his comments, saying that if China’s efforts to move to a domestic-demand driven economy break down, there is a “likelihood” that China’s government would create external conflict to band the country together and maintain their power.

“If there is conflict between China and a military ally of the United States, like Japan, then it is not an exaggeration to say that we are on the threshold of a third world war,” Soros said.

The billionaire investor also pointed out that military spending is currently on the rise in both Russia and China.

Calls for major concession from U.S. to aid in Chinese economic reform

Going further, Soros said it was time for the U.S. to make a “major concession” and permit China’s currency to join the IMF’s basket of currencies. This would give the Chinese economy a big boost as well as turn the yuan into a potential rival to the dollar as a global reserve currency.

However, in return, Soros argued that China would have to agree to make major concessions to reform its economy, including accepting the rule of law in terms of intellectual property and in other sectors.

Moreover, permitting China’s yuan to be a market currency would create “a binding connection” between the China and the global economy. While an agreement like he sketched out will not be easy to achieve, the 85-year-old says the alternative is so unpleasant we really have no choice.

Soros continued: “Without it, there is a real danger that China will align itself with Russia politically and militarily, and then the threat of third world war becomes real, so it is worth trying.”

Soros on trouble in the European Union

In comments reported by ValueWalk around a month ago, Soros said the European Union is currently in “deep trouble,” facing uncertainty from two unfolding crises: Ukraine and Greece.

He commented that while the war in Ukraine is a huge risk for Europe, the situation could actually turn into a positive if U.S. and European leaders support the Ukrainian government in eradicating corruption and creating an environment where free enterprise can thrive. Greece, Soros said, is a decidedly different story.

“The European Union was a very inspiring idea to people like me,” he commented, reflecting back to when EU economies were more balanced. “It was the embodiment of the idea of an open society, like minded countries getting together and sacrificing part of their sovereignty for the common good.  It was meant to be a voluntary association of equals.”

Soros continued to say: “Because of the Euro crisis, [the E.U.] has been transformed into something radically different.” He also emphasized that over time two different classes of countries have evolved: creditors and debtors. “The debtors had difficulty meeting their obligations and this put the creditors in charge. They (the creditors) set the rules and made it very difficult for the debtors to exit their inferior status. A voluntary association of equals turned into an involuntary association of un-equals.”

While avoiding making predictions, on Greece Soros noted: “Greece is a poisonous situation. All sides have made a lot of mistakes, and there is a lot of hostility, a lot of negative sentiments…Both sides are willing to hurt the other side even if it hurts them.”