Ray Dalio, head of the world’s biggest hedge fund, Bridgewater, said on Thursday it was long overdue for China to conduct a “big debt restructuring.”
The US billionaire, an enthusiastic and long-term investor in China, said Beijing needed to undertake the difficult task of deleveraging because debt service payments were freezing the economy.
“As for the debt and the economy, there is an obvious need for a big debt restructuring of the sort that Zhu Rongji engineered in the late 1990s, just much bigger,” Dalio wrote in a LinkedIn post.
He was referring to the former Chinese premier, who reformed lumbering state-owned enterprises and laid off millions during his term in office from 1998 to 2003.
“China is overdue in doing it.”
Poor provinces burdened by debt service fees
Dalio said deleveraging is never an easy task, but in the case of China it could be more manageable because most of its debt is in domestic currency and held by its citizens.
“It needs to follow this beautiful deleveraging process now because the debt-burdened balance sheets and burdensome debt service payments are freezing the economy, especially at the provincial level and most especially in some of the poorest provinces,” Dalio said.
China has been struggling to revive its economy following the Covid-19 pandemic and economists say debt-laden municipalities now represent a major risk to the country’s economy.
Very popular among Chinese investors, Dalio is a self-proclaimed Sinophile with long connections with China. The Chinese version of Dalio’s book, “Principles: Life and Work,” was a bestseller when it debuted in 2018.
Connecticut-based Bridgewater Associates, the $125-billion hedge fund he founded and in which he is a member of the operating board, is an investor in China and offers funds for Chinese investors.
Last year, Bridgewater doubled its fund assets in China to more than 20 billion yuan ($2.74 billion), cementing its position as the biggest foreign hedge fund in the country.
The hedge fund launched its first onshore China fund in 2018 and, since then, two other funds have been established.
- Reuters with additional editing by Jim Pollard