Dalio Says China Must Fix Debt Problems or Face ‘Lost Decade’

Ray Dalio

(Bloomberg) — Ray Dalio warned that China should cut its debt and ease monetary policy or face “a lost decade.”

The billionaire founder of Bridgewater Associates said in a nearly 5,000-word post on LinkedIn that he agrees with Chinese President Xi Jinping’s warning of a 100-year period of unprecedented change and recommends the country take steps to manage its debt problem.

The hedge fund titan was referring to the Chinese Communist Party’s political slogan of “great changes unseen in a century,” used to describe the future trajectory of international order. While the phrase was first used by Chinese academics following the 2008 recession, it was adopted by the party in 2017 and since used in diplomatic contexts.

“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,’” he wrote.

He added that China-US tensions are causing foreign investors to diversify or leave China for fear of being discriminated against. That’s causing China to face difficulties obtaining investments, and without a reconciliation of economic and cultural clashes, the chance of a war in the next 10 years is high.

Dalio has a long history of involvement with Chinese officials and has expressed admiration for some of Beijing’s economic policies, while also building up his business there. He’s warned about the risks of conflict between US and China for years.

To manage its debt problem, Dalio recommends that China engineer a deleveraging and an easing of monetary policy at the same time, but acknowledges that such a move would be difficult and politically dangerous as it would lead to big changes in wealth levels.

“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.”

–With assistance from Jing Li.

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