Renowned investor Ray Dalio, founder of Bridgewater Associates, has shifted from being optimistic to pessimistic about the Chinese economy, believing that China is entering a century-long storm.
In a recent interview with Nikkei Asia, Dalio expressed concerns that the real estate debt issue is severely dragging down the Chinese economy.
Approximately five years ago, Dalio’s economic bubble measurement system indicated that bubbles were forming in China’s real estate market and local bond market, and indeed, these markets soon experienced a collapse.
Since the economic boom of the 1980s in China, Dalio noted that Chinese debt has been expanding, while the wealth gap has been widening. Additionally, the population decrease resulting from the one-child policy has contributed to the country’s increasing national debt.
Dalio believes that China now needs to undergo debt restructuring, a process that will be “painful and extremely difficult,” both politically and economically.
“China is entering a century-long storm. Just like Japan took decades to recover economically after the bursting of the economic bubble, the challenges may continue,” he said.
Dalio sees China’s debt crisis as the most dangerous challenge. He emphasized that the revival of the Chinese economy will depend on how effectively deleveraging is carried out.
Furthermore, he stated that despite China’s undervalued stock market, the country’s structural issues remain unresolved.
Regarding geopolitical issues between China and the US, Dalio believes that the risk of an economic war between the two countries is higher compared to a military conflict.
He expects long-term trade frictions not only between the US and China but also between Beijing and Europe, the Middle East, and Asia. Chinese businesses, especially those within industries facing excess production capacity and needing to rely on exports, will bear the brunt of higher economic costs.
Foreign companies are becoming more pessimistic about expanding their operations into the Chinese market due to geopolitical risks, a sentiment that may also affect Chinese companies. Additionally, concerns around the technological rivalry between the US and China in artificial intelligence (AI) and quantum computing are worrisome.
However, for Southeast Asian countries, this situation could present an opportunity. Countries in the ASEAN region, such as Indonesia, Singapore, Vietnam, and India, are expected to benefit significantly from the geopolitical tensions between China and the US. Some manufacturers have already adopted the “China+1” strategy to mitigate risks by redirecting investments from China or partly relocating them to other Southeast Asian countries.