Ray Dalio’s take on China
Bridgewater Associates founder Ray Dalio is in Davos, Switzerland, for the World Economic Forum (or WEF), where he offered his take on the slowdown in China and how it could impact worldwide growth. While talking to Fox Business on January 21, Dalio said, “China’s going through two drags on its economy in the short term.”
Dalio considers the two drags to be:
- Deleveraging: Dalio acknowledges that “deleveraging is a good thing.” In his opinion, however, deleveraging could slow down demand.
- Conflict with the US over debt (AGG): Another factor impacting China is its conflict with the US, especially over debt. He maintains that Europe has negative growth while the US’s growth could slow to between 0% to 2% over the next 18 months. The slower growth environment, in his opinion, will impact capital flows.
China’s change of mix to impact the US negatively
Dalio thinks that China could change the mix of its asset holdings, which could impact the US negatively, which is especially true given that the US (DIA) will have to go for selling a large amount of US dollar-denominated (UUP) (USDU) debt in the next few years due to increasing deficits as a result of corporate tax cuts. Dalio also stated that those capital flows are a big deal.
China and US debt holdings
While many market participants are worried about China (FXI) retaliating against the US through its debt (GOVT) holdings in the US (SPY), China is trying to assure that it won’t happen. The China Securities Regulatory Commission’s vice chair stated at the WEF that he doesn’t think that China will in any way significantly reduce its investment into the US government bond market.” China is the US’s largest foreign debt holder.