Text: Wang Huiyao in Dialogue with Ray Dalio: Challenges and Changes – moving forward for the US and China in a post-pandemic world

January 11 , 2023





To welcome the new year, CCG organized a special episode of the CCG China and the World Dialogue Series in which Founder and president Henry Wang Huiyao talked to the great global macroeconomic investor and founder of the Bridgewater Associates, Ray Dalio, about his new book Principles on Dealing with the Changing World Order. During their conversation, they explored the key principles of the book, digging into the three big forces shaping the lifecycle and the five determining factors of a nation’s health, before providing an outlook for the world economy in 2023 and US-China relations in a post-pandemic future. Here is a full transcript of the dialogue. (The following was produced by our editorial team without being reviewed by guests of this dialogue.)

To welcome the new year, CCG organized a special episode of the CCG China and the World Dialogue Series in which Founder and president Henry Wang Huiyao talked to the great global macroeconomic investor and founder of the Bridgewater Associates, Ray Dalio, about his new book Principles on Dealing with the Changing World Order. During their conversation, they explored the key principles of the book, digging into the three big forces shaping the lifecycle and the five determining factors of a nation’s health, before providing an outlook for the world economy in 2023 and US-China relations in a post-pandemic future. Here is a full transcript of the dialogue. (The following was produced by our editorial team without being reviewed by guests of this dialogue.)

Opening remarks

Wang Huiyao: Good morning and good evening, depending on where you are. Welcome to the CCG China and the World Dialogue Series. I’m the host of this series, Henry Wang Huiyao, and I’m also the founder and the president of the Centre of China and Globalization. I’m incredibly glad today to kick-start this new year with another episode of a dialogue series, and this time we have the distinguished macroeconomic investor, the great business leader, Ray Dalio.

He’s the founder, CIO mentor and board member of Bridgewater Associates – the world largest hedge fund and a global leader in institution portfolio management. In 1975, Ray actually founded an investment firm (Bridgewater Associates) out of his two-bedroom apartment! 40 years later, this company has grown into the fifth most important private company in the United States according to the Fortune magazine. After 47 years of running the firm, Ray has since successfully transitioned its management to the next generation of leaders, but remained intimately involved in an investing side and as a mentor to the firm.

Ray is also a major philanthropist. For example, he is deeply involved and devoted to protecting the oceans and to close the education and opportunity gap in the United States. He’s now in the third phase of his life where he wants to pass along what he has learned to help others to be successful. Which is why he writes his New York Times bestseller book as well as publishing his popular 18 articles.

For example, “The Mechanism of the War Economy”, which I learned a lot from studying it. Russia-Ukraine is also a great article and also economic studies. Of course, his Principles for Dealing with the Change in World Orders has been translated into Chinese.

Growing up in a middle-class family in Long Island and falling in love with market when he was only 12, Ray has truly lived the American dream. Not only that, along the way of running Bridgewater, Ray discovered a set of unique principles that have led to Bridgewater’s exceptionally effective culture, which he describes as “an idea meritocracy that strives to achieve meaningful work and meaningful relationships through radical transparency.” Ray’s book has been translated to Chinese and has become a bestseller in China. I’m sure this is the case for the rest of the world as well and particularly for his latest new book, which came out in 2021, Principles for Dealing with the Changing World Orders has been extremely important and enlightening.

So we are going to discuss his bestselling book, Principles for Dealing with the Changing World Order. Precisely, we will discuss about his threading principles, how he looks at the war and also other turbulence of our time, like the post-pandemic era we are living now, US-China relations, war relations and all the other challenges, and how do we handle them.

So, Ray, I’m very glad that you’re taking the time out of your busy schedules to join me and maybe you can start saying some opening remarks and say something to our audience today. Thank you, Ray.

Ray Dalio: Thank you so much for having me. I started to come to China in 1984 as a guest of CITIC, which was the only window company at the time, the only company that could look at the outside world. I’ve come through all those years and so I’ve had the pleasure of getting to know Chinese people, good old friends, the culture and to be able to contribute in some ways. So again, I really appreciate the opportunity to exchange thoughts because I think that this is a particularly important time for mutual understanding. So thank you very much. You refer to the changing world order, the book about principles for dealing with the changing world order. What I learned in my life over 50 years of macro investing is that many things that surprised me because they didn’t happen in my lifetime before, but they had been many times in history.

The pandemic is a good example, but I didn’t realize that if I looked back on history when these new developments occurred, I could learn the lessons of the past.

And so, there were three things that drew my attention and led me to study the last 500 years of history, particularly to study the rises and declines of world reserve currencies and the empires that were behind them. Those three things were: first, very large amounts of debt and money creation. The creation of debt lead and the printing of money of the reserve currency to monetize that debt. These levels of debt monetization have never happened in these magnitudes before. You have to go back to the 1930-1945 period to see the same extent of it and it happened many times in history.

The second is great internal conflict caused by large wealth and values gaps, leading to very large political gaps of extremists of both sides, populists of the left and populists of the right. The conflict covers all those measures, such as wealth gaps, political gaps, and so on. In the United States, the gaps are the largest since the 1930 to 1945 period. Actually, they’re larger than that and you have to go back to the 1900s to find the same level of gaps. And they are shaping the political and the economic decisions not only within the United States but in many countries, but particularly important in the United States.

And the third force is the international conflict. The great power rivalry that most importantly exists between the United States and China now, and also Russia. And those types of conflicts by all measures, as mentioned in the book, are the largest if you see the statistics of 500 years ago. So I studied that, and then when I studied history, I also saw two other major forces which China is familiar with.

Those are, first, acts of nature, and that shows droughts, floods, and pandemic have toppled more civilizations and killed more people than wars or depressions. They have a bigger impact, very important and of course they are factors today. And the fifth is human innovation and inventions.

And this is a particularly big factor. So those five factors, first the wealth and the printing of a lot of money creating a lot of debt. The second is the internal conflicts third, the external conflict, fourth the acts of nature and fifth the technology. And they operate in big cycles. You can see these cycles over and over again and, in the book, you’ll see the charts measuring all of these things plus many others and they form these big cycles. And so by knowing where we are in the cycle helps me today. Now when we look at 500 years of history, we think, oh, why do we look at that, that’s so big and irrelevant. But these issues right now affect us at the moment. The debt and money situation, the internal political situation. The external we see a day by day and they together are going to are determining the environment we’re in. So that’s the background, I hope, of our conversation today.

Debt cycles and rising populism in the world

Wang Huiyao: Thank you, Ray. You have uniquely pinpointed out the five major challenges we are now facing. You have also looked at the historical development as well. Talking about your first observation on that, the debt issue, the printing of money, and all things, that have come to a stage where I don’t know how sustainable they can be. And also, the second factor, the rising populism. I think we are facing deglobalization right now and how we can meet that challenge both for US and China. We all have that kind of issue. These two probably are the most important issues that come to people’s attention. China may have a less serious debt issue, but the US is really getting more challenges now after the pandemic. But populism is another issue. We see a polarization in the US and probably also in China and other countries. So what do you think about the current situation we are in on those two issues, first, let’s have some thoughts from you perhaps.

Ray Dalio: Yes. There are two cycles, two debt cycles.

There is a short-term cycle that we usually call it a business cycle; its average is about seven years. It takes about on average seven years to complete the cycle from recession to growth, to bubble and to recession, give or take about three years. Those together have added up over a period of time and become a long term debt cycle because debt levels have risen relatively to income levels. The way it works mechanically is very cyclical because when you give credit, you give buying power, but credit comes with debt and debt is the necessity to pay back. And therefore, when you pay back, that is not stimulative but depressing. And so it produces that cycle. Because central banks don’t want the bad part of that, they stimulate more and more at those cycles and so the debt levels build up. And because ‘one man’s debts are another man’s assets, that balancing act continues. So that’s the cycle.

So in the world right now, mostly led by the United States but other countries too, particularly western countries, you are seeing a part of the cycle where there is a short term cycle where there’s a tightening of monetary policy. And that tightening of monetary policy to fight inflation because (that’s how) the cycle works, you put a lot of credit and stimulate, and you create a lot of debt. And then it picks up the economy, and then with that it produces inflation. The amounts that were created are unprecedented except in the 1930 to 45 period, the amounts of debt. So they produced an inflation. It should be not surprising. You produce a lot of credit, a lot of buying. It produces a lot of inflation. And so now you’re seeing that tightness of monetary policy. But still, you’re producing more debt than you are paying back. In other words, the spending is greater than the income of the United States and a number of countries. And so that builds up. So we’re in the tightening part of the short term debt cycle.

We’re also at a stage in the cycle where the long-term debt cycle is a problem. Because there’s a lot of paying back. You cannot sustain spending more than you’re earning. Because then that reduces the returns and so on. So we are in a situation where even the United States dollar as the world’s reserve currency is coming more into question. Partially because the United States is no longer the dominant trading power. So for example, China counts for a higher percentage of world trade than the United States does. And up until recently, it did not denominate that trade in Chinese currency, in Renminbi. But increasingly, there is a desire, both on the parts of those who are transacting internationally and in China, to increasingly diversify. Their reserves and their transactions. And so you’re seeing that happen. So that’s very relevant.

Now that is happening at the same time, as you point out, as there’s internal conflict. And that internal conflict is a wealth conflict. There are big wealth gaps and with those big wealth gaps, there are big values gaps. And those you’re seeing caused great political gaps and greater extremism. So in other words, is this resolved through financial situation, is this resolved through taxing the rich more or transferring wealth? And because taxing anybody is politically challenging, you see more printing of money. But it has an economic impact and it also creates an anger internally. And so you’re seeing that polarity. The conflict that we saw on January 6th, by the way, for example, or that which is going on with Brazil and that exists in a number of countries, is that gap between the wealth and also the gap between the values of our country should operate. Very classic, left and right. So we’re seeing those things operate. So as we look ahead, we see a tightening of monetary policy having a depressing effect on markets. Most markets are down significantly from their highest. And then you’re seeing it having an effect on global economic activity generally speaking. We can talk about China separately. It operates more independently. But if you take the world outside of China, that’s the pattern. And so, if you look at 2023, because of the tightness and monetary policy, the year will be a year of a relative stagflation/stagnation depending on the world if you look at different parts. There’s Europe, there’s Japan, there’s the United States and then there’s emerging countries, many emerging countries. And then we could talk about China, it has its issues. And 2024 will be another political year. A very important political year. And populism is a win-at-all-cost type of operation. So for example, recently when you see a trouble of Republicans to find the house leadership, and you see Extremists block and try to win at all costs, you see this degree of internal conflict. That affects the effectiveness of government, and it also will mean in 2024, there’ll be a big conflict. So that’s what it looks like to me. Of course, we should talk about the third influence, which is US-China relations.

Avoiding war in the great power rivalry between China and the US

Wang Huiyao: Thank you, Ray. I think you have described very well the current state of the world, including the political situation and deglobalization and what’s going on. Particularly, where is the root of the cause of the problem, the cause, the effect, and the result. But you are right, the US now has a have a large debt issue and also many other western countries probably have that. And China is trying to avoid that. That has created populism, nationalism and that leads to the internal conflict, as you describe it. And that’s where I think if we come to China-US relations, if we have so many domestic challenges now, maybe externally, we have more scapegoats or whatever. Maybe we aim our anger at other countries if people are not happy at home. I was talking to Richard Haass several weeks ago and he was talking about how maybe it’s time that we, each and every one of us, address more domestic issues and domestic challenges and see how we can really avoid that.

So you talk about China-US relations. Particularly in the last five or six years, it’s constantly deteriorating, and we could talk more. We have several wars between China and the US going on. But what assessment can you give this? The problem of China-US relations and how we can really get along better on both sides. We have Secretary Blinken coming probably in February and how we can improve that. Also China just completed its 20th Party Congress. A new central leadership will be put in place later this year. And of course, 2024 is the US election year. But given this transition, how we can really have a new equilibrium, or balance or narrative rather than the odds that we seem to have right now. So you are a great China hand. You have knowledge on both countries so well and also of the world and we love to hear your thoughts on those pressing issues. For both countries, how can we avoid this kind of big power rivalry, as some scholars describe, or this Thucydides Trap as our friend Graham Allison has been calling it.

Ray Dalio: There’s a great hold to it. There’s almost a destiny when you follow these cycles, you see that when there are domestic problems, such as what we’re talking about, the gap between world powers narrows. Conflict has a high probability of rising because when this world order, the American world order, began in 1945, the United States accounted for half the world’s economy. It had 80% of the world’s money which was gold at the time. It had a military dominance. So, of course, there was not going to be the same kind of conflict. The conflict with the Soviet Union was not comparable because it was not a comparable economic conflict.

But now, when you have suffering at home, there is blame. There are sections where a lot of populism goes back to whether you lost your job and why did you lose your job. And it’s a combination of the billionaires at home and the technology and the Chinese outside is the perception. Before, there was an appreciation to be able to buy things inexpensively from China and to be able to trade that for the debt. I remember when per capita income in China was 1/40 of the United States and China lent money to the United States to buy Chinese goods. That was once a good deal and now it’s resentment. So you start to see the populism happen for that reason. But if there was not a comparability in power between the two countries, there still wouldn’t be a fight. But with this comparability, the world doesn’t have a world court. They don’t have a way of resolving it. So, there is conflict. In history, and now, there are five kinds of wars–a trade war, a technology war, a geopolitical influence war, a capital and economic war and a military war. We are certainly in the first four of those, and there are risks about the fifth. It’s very difficult to get out of because how are such disputes resolved? So there’s a conflict that history has shown over and over to be the case. But you’re right, to focus on domestic. At the end of the day, if you want to be the most powerful and win a war, be strong domestically. And that has to do with the basics. Earn more than you spend, be productive, educate your population well, be civil, don’t have internal conflicts. Both domestically and internationally, these basic fundamentals are what will determine the strength. So yes, there’s a destiny to this. There’s almost a very very big pull, not just because of patterns, but the patterns happen because of reasons that now exist.

Now, what do you do about that? First, I think, is to recognize that you should be very fearful about a military conflict for each side. Because the power to do each other harm has advanced enormously, like great technologies. The great technologies for doing each other harm is greater than ever before and everyone in the world should be fearful and deal with that at all cost. And I was very happy to see that President Xi and President Biden were dealing with that question with priority in their last meeting, and that is what leads to Secretary Blinken’s visit. It’s very very delicate. So the fear of mutually assured destruction should be a great motivator. I don’t think the other competitions are going to change. They will intensify–trade war, technology war, geopolitical influence war, economic and capital war. I think those will be a test of the strength of the two systems. So I think avoiding military war is what we’re looking forward to.

Deglobalization or a different type of globalization? Global solutions to bring the world together again

Wang Huiyao: Thank you, Ray. That’s an excellent analysis of the current situation. I noticed that President Biden proposed at the OECD and at G7 and then at G20 where they all agreed to propose global minimum corporate tax. Where I think the multinationals, say the Fortune Top 500 companies–including China as it now has more Fortune Top 500 companies than the US—when they operate worldwide, they should have minimum tax so it will benefit both the home and host country. But there is probably a tendency for companies to operate worldwide and they leave the mid-west area or interior of the country out and blue-collar workers are not benefiting from this globalization. That’s where politics is local, and business is global. This kind of situation are particularly experienced by U.S. in an earlier phrase while China may go into that later.

You mentioned there is no global governance. And that precisely, the WTO, IMF, UN are not functioning as effectively as they were in 1950s or 1960s or early days when they were established. The Bretton Woods system is probably ineffective now. So how can we really safeguard these multilateral systems and work together on that? You have also mentioned the acts of nature and also technology and all those happening. How can we the big countries work together to avoid that? Otherwise, as you say, competition continues. But where’s the cooperation? China is rising. China has lifted 800 million people out of property which contributed 70 percent of global property reduction efforts for that period of time. China also does not export refugees or famine, helping stabilize the world. And also, we provide affordable, good priced products and keep inflation low. China is the largest trading partner with 130 countries . How can we really resolve that difference and mutually accept each other, or reach a new equilibrium? We are certainly in the process of trying to resolve that differences and make adjustment with each other. Absolutely you are right, we cannot get into a hot war. That would be devastating and terrible. We are already facing a pandemic, climate change and all those natural disasters – we cannot afford to fight them alone. So what do you think the solutions are? How can we avoid getting into a hot war? You’re a great expert in economics, trade and investment and these areas intertwined. We are now also si different from the Cold War Era because we are so much more intertwined. Economically, we depend on each other. Now the US is trying to decouple from China. You talked about six wars, five wars plus the culture war. So we are pursuing those wars in the sixth front. Eventually we could probably drift apart, and we have no connections, maybe it’s easier to go to war. So how can we really get together tighter instead of separating from this intertwined world, please give your advice as a business leader.

Ray Dalio: I think it’s very likely that both countries are dealing with the possibility of war and for that reason, they do take actions for self-sufficiency. The building of technologies, for example, that one is receiving from the outside world and is dependent on, needs to be done in both countries, so that there’s increasing move toward building that self-sufficiency. That’s inefficient, but it redirects the economies in that way among the great powers.

There are other countries in the world that are not in this great power rivalry, such as India, the ASEAN countries, the Middle Eastern countries and so on. They are becoming more global in many ways because they are benefiting from some of the conflict. People who want to avoid conflict are moving their capital or production to other places while this is taking place. I think we’re going to see more of that as a result of this dynamic. And to be neutral in conflicts is a preferred path that most other countries are and want to be on. As a result, you are seeing globalization take place in different places in different ways. So I think it’s important to distinguish the countries that are in conflict–China, Russia, the United States, Europe to some extent NATO countries and so on–and those that don’t have internal conflict and don’t have these issues. If you want to pick what good places are, they are those that are earning more than their spending. They have a good income and balance sheet. They have limited internal: they work well together, there’s harmony and effectiveness. And they are not in external conflict. So if you see some countries, people from all over the world, including China and the United States, are going to some of these places because they are places of opportunity while the others are in conflict. I don’t think it’s the end of globalization as much as it’s a movement of globalization to other places. Because this power exists from globalization. When you get the best minds and technologies together, wherever it is, it’s a very powerful force. That is what we’re going to see more of.

Countries should not be forced to “pick sides” in US-China competition and the “war economy”

Wang Huiyao: Thank you, Ray. That was a very frank and straight analysis. That would be something very unfortunate if we entered into these two scopes of the war.

I think China is actually pursuing more economic globalization whereas US is still safeguarding the old order that was established after the second World War, more on the security side. For example, NATO has now taken more countries in. You have the Five Eyes Alliance, the Biden Administration basically set up a QUAD (security alliance), the AUKUS, a nuclear submarines allianve and all those military stuff around China, and even the IPEF (Indo-Pacific Economic Framework) that have some ASEAN countries have joined. But we see China is working on the contrary.. China has launched the Belt and Road Initiative and AIIB. China has joined RCEP and wants to join CPTPP which is designed by the US and wants to join DEPA (Digital Economy Partnership Agreement). China has started a China-African cooperation and signed an investment treaty with the European Union [editor note: referring to the Comprehensive Agreement on Investment (CAI)] which hasn’t been effective because of sanctions. China recently also started more economic relationships with Latin American and Arab countries–President Xi just attended China-Arab States Summit last month. Do we see a more dual-track globalization where China pursues a more economic-oriented globalization while the US pursue a more security-oriented globalization. Countries who don’t want to get involved on the rivialry maybe have to pick sides now, which is not healthy and would probably cause the world to slow down and even go into recession. So what’s your take on that?

Ray Dalio: First of all, though there will be a lot of pressure to pick sides, I think most countries will not do so. You can see that in the UN votes on the Russian issue. You can see that on trade deals. You can see all the deals that came out of President Xi’s visit in the Middle East. When I go around the world and speak with world leaders, they often ask me which side should it be, US or China? When they go through it, they say, if economic, it’s probably China. If military, will the United States be there when we need it or not? That’s a kind of popular thought. But by and large, you can see most countries are behaving outside of that alliance to just try to go on and that’s benefiting them. India, Indonesia, numbers of ASEAN countries and Middle East countries are benefiting from this in many ways. So I think that’s our new normal.

Wang Huiyao: It’s good to know that. I really hope those countries aren’t forced to pick sides because people are economically driven in the end–they have to pursue a better life. If they can have a good treat and good prospect of bring food to table with good quality, they will continue the life they have been enjoying.

Ray Dalio: At the same time, during periods where there are risks of war, everything economically is put to secondary importance. History has shown this. For example, in the Korean war, the United States was a dominant power but because of sovereignty. Chairman Mao is famous at the time in saying there’s 700 million people in China and you can’t kill all of us. Sovereignty and other issues are of paramount importance, so economics doesn’t always rule. In World War I, they intermarried but it was run by kingdoms, and they still went to war. So when you have the risk of a war, economics will take a secondary role–of course it’s the most important thing under normal circumstances—but for example now, the idea of being self-sufficient by doing things that are uneconomic but on the other hand, guaranteeing that you have your supply, that you have your production, is of paramount importance. So I agree with you that economics is important, but at such times you can’t necessarily assume the highest living standards. It’s not a big deal. Since I started coming to China in 1984, per capita income has increased by 28 times, life expectancy increased by 10 years and the poverty rate, in term of being hungry, went from 88% to less than 1%. Amazing achievements. If there was negative growth, in comparison to where China has been, you’d almost be spoiled to complain if you’re taking what you look at the whole living standards. So sometimes it’s expected that people will not necessarily put a decline in their living standards as paramount importance. People sometimes have to suffer a little bit for the greater good and you know that, any Chinese who studied history in the dynasties and so knows that.

Avoid the “Prisoner’s dilemma” in US-China relations: working together for a better future and avoiding escalating the Taiwan situation

Wang Huiyao: Absolutely, Ray, I think this is a fascinating. I think that we are living in a world where since World War II – 77 or 78 years ago – the world has really prevented the third World War because of the prosperity the boom we had,and the World Bank, IMF, WTO, and all those things and now we have all those new trade arrangements. So we hope that we continue. But you are right, you know you mentioned about this internal conflict, populism nationality is rising and that’s really driving us apart and that may lead to a decoupling or a self-sufficiency, which could lead to cutting down our ties and connections and it will be driven to self-prepared for the hot war. That’s really dangerous. I would just say that it is precisely as we discussed at the very beginning, both the US and China need to address their own problems. Let’s fix our own houses rather than look outward to other countries, working diligently on our own problem and not really blaming each other. Probably we could still continue with some engagement with each other, particularly, the trade is probably the best medicine for keeping everybody still intertwined.

And I look at this great book is really a fascinating of course, you talk about three big cycles. This internal order, of course the debt and the external order. We are talking about all those issues, but you have a different kind of model. You outline eight key measures of power – eight key measurements of how we can do better domestically.

Maybe if we concentrate on domestic issues – you talk about education, innovation, technology, the cost of competitiveness, military strength, trade, economic output markets and financial centers and reserve currency status and those of course the there’s other factories too.

Ray Dalio: Education is very important.

Wang Huiyao: That’s right. So it’s very important. Education… So now China is catching up on education. For example, China now has 218 million people who have a college degree among its population and every year China produces more than 10 million college graduates. If every country is focused on that, and then, maybe we could still, find a way to cooperate with each other rather than being in this rivalry mode. I don’t know how far the challenge going to lead us, but it’s not good for future generations. So is there any advice you would give to both countries on how we can continue peacefully. I was talking to Joseph Nye, the Harvard professor, some time ago last year. He was saying that there is a 20-year cycle. Now we are in a very agonizing period where we are in a very difficult, challenging time, but maybe in 15 or 20 years, we will reach a new equilibrium. Maybe China will accept the US and the US will accept China because China has already accepted globalization and the boom that trade has given China. China also wants to maintain the existing global order, whereas the US now probably wants to change that now. So the question of how can we change for the better rather than divorce or decouple is one that that really bothers a lot of people here in China.

Ray Dalio: It is so much better when we work together. There’s the fear…. I have a principle that if you worry, you don’t have to worry and if you don’t worry, you need to worry. Because if you worry about something, you will prevent the thing you’re worrying about. And if you don’t worry about something that might happen, you won’t prevent it. And so first, I think worrying about this conflict is a good thing. I think that also if you look at the opportunity of what the world can be like when we work together, which we have seen and that is a beautiful world. There’s so much more creativity, there’s so much more harmony. I love the harmony. And people who’ve experienced it. So it needs mutual understanding. It’s why conversations like this and spending time in both places is so important. So there’s a lot of upside to harmony and working together and there’s terrible downside for not doing that. We all know that. The question is, can you get away from what’s called “the prisoner’s dilemma”. A prisoner’s dilemma is if you don’t know if the opponent is going to kill you or work well with you. Even though it’s in your both interests to work well together, the logical thing is to kill the opponent and that dynamic, that competition, is the threat. So we know that this greater good. I just hope that as we work together, maybe, in these distant ways that we can achieve that, but we have to be realistic.

So I think that if we have peace militarily, I think the Taiwan issue is a big issue and it’s our only great threat issue and I know what it means to China. And I know the issue. But if we can deal with that issue somehow, and we must, then there’s just the competition. It could be a difficult competition, or it can be a cooperative competition, but it will be a competition and that’s okay.

Wang Huiyao: Yeah, Graham Allison talked about his cooperative competition and then also Joseph Nye talked about his cooperative rivalry or something similar. That’s only the status we could reach, but you are right. I think Taiwan is really, as you described in your book, a major risk in our relations. But I really hope that we still focus a bit more on the economic side. I think economic integration between the mainland and Taiwan, for example, before current president Tsai Ing-wen took power, the mainland and Taiwan were already merging because of millions of tourists flooded Taiwan from mainland and bought a lot of agricultural products from Taiwan. Taiwan enjoyed a huge surplus of trade with the mainland. And also, of course, you know there are well over 2 million Taiwanese working in the mainland as well as several hundred thousand marriages between couples living across the straits with Taiwan. So if we pursue that economic corridor, then we can integrate eventually. I’m glad to see that KMT recently in the midterm has a swept almost all the major seats and the KMT recognizes the 1992 Consensus which outlines the “One China” principle. So hopefully, if we do not have so many senior level officials or congressmen and senators visiting Taiwan and China would be less likely to cross the midline or flying over Taiwan straits. I think you’re right. We need to visit each other more. We need a more congressmen, senators visiting China rather than visiting Taiwan. Let’s see how China’s functioning pretty well and then maybe you can avoid this kind of distrust, as you said, is “the prisoner’s dilemma” that we are in.

We really hope that we’re not getting to the point of that. That is speaking to the world that we are facing. So I’m very glad that you mentioned that.

A macroeconomic investor’s outlook for the world economy in 2023

Wang Huiyao: Now maybe we could talk a bit about looking at the 2023 now we are in the new year and China just lifted quarantine of travel restrictions yesterday. Now everybody can freely come to China, the Omicron is reaching large herd immunity. Now, in Beijing, the traffic is busy, restaurant is fully seated now as people started going back and so we hopefully ther will be more people coming. So what do you think of a 2023 post-pandemic future for the U.S. economy, Chinese economy and of course the world and how we can take opportunities of this after three years of locking down. I mean, for example, before the locking down, China had 150 million outbound tourists trips. Before the pandemic, we had more than 5 million annual trips between China and the U.S. We still have a lot of Chinese students going to U.S., over 300 thousand currently in the U.S. Hopefully this people-to-people exchange, business exchange will stabilize the situation. Let’s not deteriorate. Not, as you know, free falling but maybe stabilizing, maybe elevate a bit. So what’s your advice to stabilize relations for both China and the US post-pandemic.

Ray Dalio: Well, I’ll deal with the question of the US and the economy outside and then the Chinese situation. 2023 for the outside world, outside of China is going to be a difficult economy because of the tightening of monetary policy, the issue pertaining to the Ukraine war and other matters. It’s going to be a difficult year.

Something close depending on what country you’re looking at. But on average, a recession year, with relative stagnation. That creates an environment if you’re taking, let’s say if we look at China now, that piece just represents a poor export market to sell into.

So that’s one thing. So if I look at China, I think that with the new leadership, they’ll be challenged taking on some of the challenges. And the challenges, as you mentioned, there’s a covid challenge which we have much I think more reason to be optimistic. Because of that, there’s also an economic challenge arising from the real estate and associated debt problems that have come to local governments and have come in into the system that can be dealt with. And my hope is that as we come to 2023, that those economic issues can be dealt with because whatever debts that are exist in financial are in the local currency. And so the ability to deal with that I think is there. So but that is a factor, as you know.

Another factor is the change in the regulatory environment as it pertains to large tech companies and so on. That’s improving. I think that that’s creating and there’s a lot of development of an entrepreneurship. You know, the Little Giants Program. For example, which I’m sure you know and the development of the Beijing stock exchange for those types of entrepreneurial companies is a stimulation. And there’s a shift in the economy to I think a healthier economy because as President Xi said, when you build housing to speculate on rather than to live in, it’s a waste of resources. And so there will be a redirection. But there’s an adjustment process that takes place for that. There is also the issue of safety in the world. I think it will improve. But the idea internationally can we safely produce in these countries that are in conflict and the movement to those. So these are challenges. I think they’re not big challenges, not very big challenges is in the scope of things.

What matters most is the strength of the leadership. And I do believe that a common prosperity is what both countries need. Because without common prosperity that benefits most people, then you have the internal conflict. So I think that this is an adjustment period. 2023 is an adjustment period. And there’s new leadership, but there are those challenges. And I think we’re in the adjustment period in both countries. I think that China’s growth rate will pick up. My estimates are, and there’s nothing precise about them, so maybe 4.5% to 5% or something kind of position, which in the United States we would consider that a boom. You know what they look like Europe though will be stagnant. The United States, South America, lots of the emerging countries generally will be having a difficult time in 2023.

Sectors to watch in 2023 – a good places for investment and the importance of diversifying investments

Wang Huiyao: So you are a great investor. Maybe at the end of the talk, you can give us a bit of analysis about what categories or products or sectors we should focus in the next year or two – energy, with the Ukraine war going on – but what about climate change or clean energy and other areas like AI. So what are those new sectors that we should really look into and maybe countries or regions that we should pay more attention to in terms of looking at the global market, where should we put our money or investment. So maybe you can share some of your wisdom.

Ray Dalio: Diversification of good places and good industries is very important. And so, I would say the good places are places in which there is more income than expenses, that they are profitable, that they have good income statements and balance sheets. What are your country’s finances? This is very important today. Those who are financially strong. And you can see it income statements and balance sheets like people or companies.

The second is internal conflict. If you have great internal conflict so it becomes dysfunctional and creates great uncertainties. That is disruptive. If you have harmony, and you have unity and civility. These are all measurable. So the finances, how people are with each other.

And then number three, is there a risk of an international war. Because countries with have a risk of an international war will suffer from that in various ways. So the regions I look for are places that are exempt from those things. In addition, when I look for technologies, when I look at new areas, I think you are going to see revolutionary changes in the way we live. Disruptive technologies are taking place all over the place. Because the computers have supplemented the mental intelligence. And so we have an ability to invent like it’s never existed before and those developments are creating very big disruptive technologies in many, many, many areas. So yes, we can talk about AI, but you can carry it to biotech. And you can carry it to, as you say, green technologies which are necessary, but so many, many areas where they’re going to be technological achievements. It depends on then the level of that technology.

The only two countries in the world really who have the scale and the level of technology to do it in a big way is the United States and China. And there are, of course, technologies are developing everywhere really in many places. So you have to look at those disruptive industries, I think, that are going to be powerful because the greatest power, we talked about these four influences, the debt, the internal conflict, the external conflict, the acts of nature, in other words, droughts, floods and pandemic. But the greatest force over time has been human innovation overtime. Most of these other forces have come and gone. They might take place over 10 years and a depression usually lasts a few very brief periods of time. Internal conflict wars, even wars. How long does a war last? A few years at most usually. But the force that is the greatest force is human innovation and technology and it’s never been greater. So to understand those technologies in those regions, I think is important. So investing with those criteria in mind, I think is most important. Diversify among those that have those attributes, I think.

Closing: building on the good spirit of this dialogue in US-China relations

Wang Huiyao: That’s really great. And very unique summary of what’s going on. You’ve also given us some great advice to our future looking at the scope that you just described is very valuable.

So I think we have gone quite a bit talk today here. We talked about all those of great dynamic is going on that affects the world, the US and China and also how we can really solve our own problem with our internal efforts and avoid these widening gaps among polarized societies. And of course, how we can get along with each other country also is absolutely important, and how to avoid military conflict is extremely important and not let picking sides for other countries. And of course, we looked at the future, where there is growth, where we have to make more efforts. And of course, also in 2023, where is the bright spot? What is the status quo and how we can lead them into a future development. So all those issues. But I’m very glad now we seems to have gotten the pandemic over and then we can start the more normal life and international exchanges and that’s why I really hope that we can welcome Ray and other US friends come to visit China. You’ve been traveling to China since 1984. That’s remarkable. I started going to the North America in 1984, but I just said, we see so much change in China taking place and we both witness that. And so for a business leader like you to really say that and then and telling the people who are younger generation and passing on that advice is so important.

Maybe in the end, I’ll ask Ray to say a few closing remarks. I truly hope that China and the US will continue to cooperate. Of course, we have competition, but we don’t really have to get into a conflict. So for cooperation, and maybe we have more healthy competition, Olympic style, but no conflict. I’m trying to avoid that. So, we will have your final wisdom and your closing remark, please.

Ray Dalio: I don’t know about the wisdom, but I’ll give you my closing remark. Henry, I think that conversations like this, I think that relationships such as those that you and I have, those that you have with Americans and American leaders and that I have with Chinese leaders and Chinese friends is so great! And I think that the truth is we’ve never had it better, really. That China’s condition, the living standards I’ve seen the difference and so our living standards are really higher than they have ever been. And the communication is really greater than it’s ever been. And there is this threat, but most likely the fear and the wisdom will prevail, and that we will continue to build on our relationships, I believe, as long as that we don’t waver in pursuit of those types of friendships. I sent my son when he was 11 to an all-Chinese school, he’s the only foreigner in the Chinese school and he says he became a bit Chinese. And I know the relationships.

And I think that there are many who understand those relationships. So I would say that is a powerful force to understanding. And we just have to continue to have these types of conversations and these kinds of relationships. And I believe that that force will is a great force that will win out in the end.

Wang Huiyao: Great, thank you so much Ray! I mean really, what we have discussed today, a lot of this Principles for Dealing with the Changing World Order and we have that actually, translated by a CITIC press, in Chinese, which is becoming the bestseller already now in China and we really appreciate Ray taking the time to join CCG’s global distinguished dialogue series. We’ve learned so much. We’ll also have this availble online dialogue and we will transcribe it to include it in a new book with all the other distinguished guests in our dialogue series. I really appreciate you taking the time to join us today and we hope to see you in China very soon in 2023. And we look forward to future cooperation between China and the US. Thank you so much, Ray and thank you for your time, Bye for now.

Ray Dalio: Bye now.

Note: The above text is the output of transcribing from an audio recording. It is posted as a reference for the discussion.



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