China News Service | China News Service | Getty Images BEIJING — American billionaire Ray Dalio said that while he is far less familiar with China’s new leadership team than previous officials, he expects concerns about their future policies to be overblown. That’s according to a Nov. 16 LinkedIn post covering his outlook on China’s economy and politics. Here are the highlights:
China’s leadership reshuffle
“I want to emphasize that none of the young people appear to be extremists,” Dalio said. “How these policymakers will balance trade-offs and regulate is now unknown and probably imagined to be riskier than they actually will.” In October, China’s ruling Communist Party cleared the way for President Xi Jinping to take an unprecedented third term while filling the core leadership team with his loyalists. “The people who are being added are loyal strongmen who seem capable and have proven that they are willing to do the unpopular things,” Dalio said. He said he was told that Li Qiang – who is expected to become the next premier – “is very capable and business-minded, but I don’t know him personally, so I don’t feel confident enough to say anything valuable about what he’s like or what he wants ». “I’m told that He Lifeng will likely be Liu He’s replacement and is likely to be less strict as his background is in debt-financed infrastructure,” Dalio said. He Lifeng is currently head of the economic planning agency, the National Development and Reform Commission. Liu He, vice premier, led trade talks with the US while heading the financial stability committee. Dalio said the leadership changes mean most of the people he knew who were “reformers-globalists” are being replaced. He noted that he has not visited China since the pandemic began. “When the Xi administration first came to power, I personally knew most of those who ran the economy under Xi well enough to know what they wanted and what they were like,” Dalio said.
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The billionaire stepped down this year as co-chief investment officer from the hedge fund he founded, Bridgewater Associates. The company has a subsidiary in China. As of the quarter ended Sept. 30, Bridgewater had invested about $1.2 billion in Chinese stocks, mostly U.S.-listed names such as Baidu, Dada Nexus and Pinduoduo, according to a filing with the U.S. Securities and Exchange Commission. In his post this week, Dalio said his observations were based on 38 years of “intimate contact” with people in China and his research into the country’s history dating back to the Qin Dynasty some 2,200 years ago.
Prominence of war
Dalio warned that the possibility of a conflict with China would be a drag on markets and economic activity in the coming years, even if war never breaks out. “I have heard that in a new Republican-controlled House, there is some possibility that a bill supporting Taiwan independence will be passed, which for the Chinese would be tantamount to a declaration of war and very likely lead to some kind of military conflict with the China,” Dalio said. “Obviously the reality of it [war] it would be devastating,” he said. “The good thing is that reasonable people, which are still most people in power, understand that this would be terrible.” This week, Xi and US President Joe Biden met in person for the first time since Biden took office. Many analysts saw the meeting as positive for the bilateral relationship, which has become increasingly strained in recent years.
Real estate and the economy
China’s real estate debt problems and their spillover “to the bones of the economy” is one of the country’s biggest challenges, Dalio said, noting that real estate accounts for about a quarter of the economy and 70 percent of wealth. He expects that China can handle the situation, but it will take at least two or three years. “Even then, it will leave some marks, which will probably be more good than bad in the long run because the lessons will stick,” he said. Dalio also said that lifting China’s strict Covid controls would not necessarily make the economy stronger immediately. “Because the elderly are vulnerable and unprotected, and because the medical system is not prepared to adequately handle many elderly people with COVID, this is not an easy solution, although it can be addressed in a more targeted way, as in the pipeline,” he said.
