There is a place for China in a diversified portfolio even as it tries to fix its debt problem, according to Bridgewater Associates Founder Ray Dalio and GIC Chief Executive Officer Lim Chow Kiat.
“As (Chinese President) Xi Jinping said, there’s a 100-year storm on the horizon,” Dalio said during the opening panel discussion at the Milken Institute Asia Summit held in Singapore on Sept. 18. “China approaches it in an almost opposite way with the United States, because the United States is about individuals, creativity, bottom up. China’s very top down.”
There are big structural problems in the Chinese economy that calls for a restructuring he added.
Households have 70% of their money in real estate, which has declined, he explained. Stocks have gone down and salaries have been cut, leading to job uncertainty, so households “are holding their money in cash mechanistically.”
The only way to change that is to have a “significant negative real interest rate,” he said.
The country also has a fiscal policy issue where local governments — which contribute 83% of total government spending — got their money from lands sales and bonds.
“They have a debt problem, so they need to have a restructuring of the debt. It’s a very complicated and politically charged thing, because when you do a restructuring of debt, some people lose a lot of money, some people benefit from that,” he said.
In spite of these issues, there’s an amount of money to invest in China, as there is an amount to invest in the U.S. and technology, he said. The question is where to invest, how much to invest, and how to diversify, he said.
China is addressing its debt problem and rejigging its gross domestic product mix, moving away from housing and heavy fixed-investment-related components and towards consumption and exports, Lim added.
In addition China has made headway in the green transition and geopolitical reform by putting emphasis on security and resilience, he said.
In terms of the green transition, there are companies in China in the process of helping the world lower the cost of adopting green energy, he added.
“We are continuing to invest in China, (although) deal flow has been extremely slow. Markets have low expectations in terms of the macro of China. This might take a while for things to work through but certainly, as the second largest economy in the world with great entrepreneurs, (China) is a place that we cannot miss out on Ray's point about diversification,” Lim said.
GIC is the sovereign wealth fund of Singapore with an estimated $800.8 billion in assets, according to the Sovereign Wealth Fund Institute.
