Ray Dalio, the founder of Bridgewater Associates, has called on Xi Jinping‘s China to adopt a “beautiful deleveraging” strategy. This comes in the wake of China’s recent stimulus measures, which Dalio believes should be complemented with this strategy to avert a potential debt crisis.
What Happened: Dalio, while speaking at the FutureChina Global Forum in Singapore on Friday, underscored the importance of a balanced approach to deficits, which he terms “beautiful deleveraging,” CNBC reported.
This strategy encompasses debt restructuring, money printing, and debt monetization.
Dalio elaborated that debt restructuring is deflationary, while money creation is inflationary, thus making it an effective method to alleviate the debt burden. He expressed faith in China’s ability and readiness to execute this strategy, as demonstrated by their recent policies.
"That's the real interesting question of China, in terms of how it's approaching its debt issue," Dalio said.
"They have the capacity to do that, and I believe they have the willingness to do that. That's being demonstrated by [recent] policies," he added.
Since the end of September, Beijing has rolled out several rounds of stimulus and reform measures to strengthen its economy. However, Dalio emphasized the need for debt restructuring amid these changes. He also drew attention to the speculation surrounding Beijing’s potential fiscal stimulus package, which some economists estimate could be as high as 10 trillion yuan ($1.4 trillion).
Despite the simplicity of creating money and credit, Dalio cautioned that this could aggravate other problems if not properly executed as part of a restructuring. He also highlighted other challenges, such as China’s local-level debt and aging population.
Why It Matters: Dalio’s recent remarks align with his previous observations about China’s economic landscape. In an earlier LinkedIn post, he highlighted three key factors that have set Chinese markets "on fire": A "reflationary barrage" of fiscal and monetary policies, strong statements supporting free markets, and the current low valuation of Chinese assets.
However, Dalio also raised concerns about the complexities of investing in China amid the country’s shifting economic policies. He questioned China’s favorability towards capitalism and highlighted the challenges posed by significant structural changes in the Chinese economy.
Earlier in the year, Dalio had also warned of escalating U.S.-China tensions and stressed the importance of diversification in the face of growing global risks.
Meanwhile, several major Chinese companies saw significant gains in Friday pre-market. As per Benzinga Pro, Alibaba Group Holding Ltd – ADR BABA rose by 3.23%, while its rival PDD Holdings Inc. PDD increased by 5.38%. Baidu Inc BIDU climbed 4.23%, and JD.Com Inc JD was up 5.05%.
In the electric vehicle sector, Nio Inc – ADR NIO and Li Auto Inc LI saw increases of 5.44% and 6.48%, respectively. The jump came after China’s GDP grew by 4.6% year-over-year in the third quarter, surpassing expectations from a Reuters poll, though slightly below the 4.7% growth in the previous quarter.
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