Great video here from Ray Dalio on Cold War 2.0:
His history is terrific but I disagree on the future:
- China’s investment-led economic model is running out of gas and will stagnate through the 2020s;
- The key driver is the failure of reform which leaves it wedged between falling productivity, rising debt and declining demographics;
- As China joins the secular stagnation club and its “catch-up” growth ends, its hard power will plateau;
- That is not to say that it will be in outright decline. I expect China to remain a great power and to compete for supremacy with the US on many fronts.
A few other observations:
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- First, Dalio almost admits that he is too close to China to judge, having been there so long and been a part of its liberalisation. This felt a bit like Wall St revenge for El Trumpo.
- Second, nowhere in Dalio’s thesis did he describe China competitive advantage in the way he did the Dutch, British then American empires. Exactly what is it? For instance, everybody said Japan would rule the world via extrapolated charts. But it didn’t. China is bigger. And?
- Third, Dalio seriously glosses over the problems associated with the autocratic regime versus liberal economic system. We can see them today in Hong Kong. More to the point, rule of law is virtually non-existent in China and that places a natural constraint on its globalisation. Simply conflating “Confuscion” and “Chinese” thought is seriously glib stuff. Does Dalio really think that Chinese peeps don’t want to be free owing to some ancient cave-dweller? And that that isn’t an issue for those that are free and wish to remain so, as well as engage with China?
All up, this was not much different to watching a presentation by the Australian Treasury, though I am sorry for the insult, Ray!
As for investing. It’s a great idea but so fraught with political problems (see rule of law again) that unless you’re Bridgewater or similar it’s very hard to get quality exposure. We have looked at direct and ETF investments and both are very difficult and low quality.
Not to mention that as Australians we are already so invested in China that diversifying away from it is essential.
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