Ray Dalio, founder of Bridgewater Associates
Jeenah Moon/BloombergIf “lost decade” talk about China came from most anyone else, neither markets nor Beijing would care. When it’s Ray Dalio warning of a “100-year big storm” in Asia’s biggest economy, you listen.
The billionaire founder of hedge-fund giant Bridgewater Associates has a long history of involvement in China, and with the nation’s policymakers. Over the years, Dalio cultivated close relations with Beijing with an eye toward expanding into the mainland market.
Dalio has been such an enthusiastic China booster that at times it’s drawn criticism from U.S. politicians. It caused tension with Bridgewater’s 2020-2022 CEO David McCormick, a Republican who worked at the U.S. Treasury Department on President George W. Bush’s watch — and who’s now running for Senate in Pennsylvania.
So, when an old China hand with Dalio’s financial firepower talks about potential doom and gloom — and warns of Beijing repeating Japan’s 1990s mistakes — it’s going to make headlines. And Dalio’s nearly 5,000-word LinkedIn post did just that as it highlighted the risks that U.S.-China tensions could make things even worse.
“When there is a lot of debt and big wealth gaps at the same time as there are great domestic and international power conflicts, and/or great disruptive changes in nature, and great changes in technology, there is an increased likelihood of a ‘100-year big storm,’” Dalio wrote.
Here, Dalio is riffing off Chinese leader Xi Jinping’s 2018 observation about the economy facing a slowdown and a more confrontational U.S. under then-President Donald Trump. But things have gotten exponentially worse for China in the years since then.
Some of this can be blamed on fallout from the Covid-19 era, some on regulatory missteps by Xi’s government. If foreign investors really believed in, say, 2014, that the Xi era would make China more transparent and hospitable for global investment giants, they’ve surely curbed their enthusiasm by now.
If investors inspired by Alibaba Group’s splashy share listing in New York bet big in Chinese tech, Xi’s been quite a downer. Starting with Alibaba cofounder Jack Ma in late 2020, Communist Party clampdowns reminded China’s billionaires who they really report to — and it’s not shareholders.
Given all this and the onset of deflation, Dalio is eyeing China’s future through the lens of Japan’s past. And he’s hardly alone. The shockwaves from China’s property sector reckoning echo the bad loan crisis that Tokyo is still trying to leave behind.
Sure, the Nikkei 225 Stock Average is booming and testing all-time highs. But a limping economy is colliding with a fast-aging population and the biggest public burden among developed nations. Look no further than the hard time the Bank of Japan is having stepping away from 25 years of zero rates. Global investors scoffed at its attempt to start that process of hiking rates on March 19; the yen is even weaker today.
Like the “balance sheet recession” behind Japan’s lost decades, it’s China’s debt trajectory that worries Dalio and his ilk. He thinks China should accelerate deleveraging efforts and slash interest rates faster than Tokyo did in the early 1990s.
“In my opinion, this should have been done two years ago, and if not done will probably lead to a lost decade," Dalio wrote.
Dalio worries that China’s credit excesses are diverting resources, focus and energy from broader development needs. “When the debt becomes too large to pay off and there are big wealth gaps, that causes the cycle to reverse," he said.
Not that Dalio thinks it’ll be easy. As he puts it, “no one knows how far the pendulum will swing back toward the more Maoist/Marxist ways of doing things,” Dalio wrote. “The impediment is that communicating more directly is not the Chinese leadership’s traditional way of doing things, which, as China goes back toward the more traditional ways of doing things, is understandable.”
The key, of course, is that Xi makes a dramatic pivot toward doing things in a more forward-looking way. Eleven years ago, early in his tenure, Xi pledged to allow market forces play a “decisive” role in Beijing decision making. It hasn’t worked out that way.
Nowadays, Xi isn’t even content with letting Hong Kong remain the capitalist Mecca it once was. All this is at odds with the reassurances that Xi gave a who’s-who of visiting chief executives over the last week.
Chieftains stopping by Beijing included: Apple’s Tim Cook’s, Blackstone Group’s Stephen Schwarzman, Chubb’s Evan Greenberg, FedEx’s Raj Subramaniam, Pfizer’s Albert Bourla and Qualcomm’s Cristiano Amon.
From Xi, they heard that China is “healthy and sustainable.” Well, it could be if Xi’s team gets serious about raising China’s economic game. Beijing knows what’s needed to regain the reformist momentum and head off that 100-year storm. Acting now, and with greater urgency, might reassure the Dalio’s of the world that their bet on China years ago wasn’t wrong.
