Ray Dalio, the founder of Bridgewater Associates and known as a legend in the hedge fund industry, warned that China could face a "100-year storm." He predicted that if the debt issue is not resolved immediately, China could experience a Japanese-style "Lost Decade."
On the 27th (local time), Dalio posted on his LinkedIn, stating, "A few years ago, President Xi Jinping began warning that a 100-year storm was approaching, and now, like the typical early signs of a hurricane, you can feel it," adding, "China's situation is undoubtedly becoming more threatening." He explained that a combination of massive debt, population aging, wealth disparity conflicts, climate change, and US-China hegemonic rivalry could trigger this 100-year storm.
First, Dalio pointed out that China currently faces "massive debt and economic problems that worsen economic activity, inflation, and economic sentiment." He said, "Internally, it is a very difficult time financially due to the collapse of real estate, stock markets, and other assets," warning that "debt held by many companies and local governments is problematic, and if not properly addressed, it will lead to unfavorable long-term outcomes."
Accordingly, he emphasized that debt restructuring is urgently needed. In particular, Dalio stressed that deleveraging and monetary easing must occur simultaneously. This is the so-called "Beautiful deleveraging." In his previous writings, Dalio described beautiful deleveraging as easing monetary policy within a range that does not cause excessive inflation, thereby minimizing the negative effects such as reduced consumption, increased repayment pressure, and asset price declines that can occur during the debt reduction process.
This is not the first time Dalio has called for China's debt restructuring. He said, "This should have been done two years ago," expressing concern that "if not done, it will become a (Japanese) Lost Decade." He added, "It is politically difficult during tough times," but warned, "If beautiful deleveraging is not implemented, China will face a Japanese-style Lost Decade with Marxist characteristics."
He also expressed concerns about population aging. He pointed out that the aging population, which inevitably becomes a social and financial burden, could worsen further when combined with the debt problem. While the average retirement age in China is 53, the average life expectancy is 84. Dalio said, "The retirement age should be raised, and social support systems including elderly care need improvement, but neither is progressing at an appropriate pace," adding, "Government officials are reluctant to take bold measures for political reasons." He warned, "Unless the government responds more strongly, this will likely remain a burden."
The deepening wealth gap and related conflicts within China were also cited as problems. Dalio said, "In China, becoming rich is no longer considered honorable," warning of the potential recurrence of wealth confiscation, stock market closures, strict foreign exchange controls, and restrictions on leaving China.
Furthermore, he viewed the US-China hegemonic competition as having negative repercussions. He said, "It causes foreign investors and companies to want to diversify or leave China. It makes them fear global discrimination simply for being friendly to China," diagnosing that "geopolitical conflicts are intertwined even in industries where China is competitive, such as electric vehicles and solar power." He warned, "There is a high possibility of a disruptive war within the next 10 years, and people are keeping that possibility in mind," adding, "That alone causes significant damage."
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