Bridgewater’s Ray Dalio Discusses the Impact of China’s Growth on the World Economy

8/6/2019,Bridgewater’s Ray Dalio post a new video on Youtube, talk about the impact of China’s Growth on the World Economy with his college.

This video is 30 minutes long. I think the key points are included in his illustrations. These illustrations will show you how he research this problem, his method, and the results.

About Bridgewater

Bridgewater Associates is an American investment management firm founded by Ray Dalio in 1975. The firm serves institutional clients including pension funds, endowments, foundations, foreign governments, and central banks.

It utilizes a global macro investing style based on economic trends such as inflation, currency exchange rates, and U.S. gross domestic product. Bridgewater Associates began as an institutional investment advisory service, graduated to institutional investing, and pioneered the risk parity investment approach in 1996.

In 1981, the company moved its headquarters from New York City to Westport, Connecticut, and currently engages 1,700 employees. As of 2018, it had US$124.7 billion in assets under management.[3]

Ray Dalio is the founder of Bridgewater and the author of a bestseller Principles. He has stable relationships with tons of China high officials, include many people who create China’s financial market. Also, his son was sent to China to study at a very young age. So perhaps he has some bias in his opinions, and maybe he has some interest in China. However, I think his research method, data, and the idea may give us some inspiration. We may have the same result with him or have a different outcome.

Relevant Case Studies

This chart shows the 16 conflicts of the ruling powers and rising powers from the first half of 16th to now, 12 times the conflicts cause war, and four times did not cause war. Graham Allison coined the phrase Thucydides’s Trap to refer to the situation that when a rising power causes fear in an established power, it escalates toward war. Thucydides’s Trap is almost the same as the conflicts Ray Dalio mentioned.

The powers mentioned in the charts include France, Hapsburgs, Ottoman Empire, Sweden, Dutch Republic, England, Great Britan, United Kingdom, Russia, Germany, China, Japan, United States, and USSR.

There are three England, two Russia in the charts because of different period and territory and regime. Four conflicts didn’t cause war is United States vs. The United Kingdom, Japan vs. USSR, USSR vs. the United States, and Germany vs. the United Kingdom and France.

Reserve Currency Empires

This chart shows in the different periods, which empire’s money was the global reserve currency. For example, now USD is the global reserve currency; every country uses USD as the international trade currency. Around 1600,Dutch guilder was the global reserve currency. Around 1850, Pound sterling was the global reserve currency. Now it is USD. From this chart, we may predict that China RMB will be the global reserve currency in the future. Every country with six lines:

  • Tech, Edu & Comp
  • Output
  • Trade
  • Military
  • Financial Center
  • Reserve status

The basic rule from the data in all four countries shows strong correlations in these six lines. Dutch and the United Kingdom declined already; the United States is falling. From 1840 to 1990, China was in the trough, but now China is rising. (The gray areas in the chart are indicating the wartime.)

The Rise and Declines of Reserve Currencies

This chart is the average of all six data of a reserve currency country. We can see some basic rule from this chart. First, you develop technology, education, the competitive strength improved. Then the output rises, so you need more trades. Then it would help if you had more military forces to protect the oversea business. Then you need to build more financial centers to provide financial services. Then finally, your currency becomes the global reserved currency. Every country uses your money to trade.

The decline of Dutch and rise of The United Kingdom

This chart shows the decline of Dutch and rise of The United Kingdom. The dotted line is Dutch, other lines is the United Kingdom.

This chart shows the decline of Dutch and the rise of the United Kingdom. The dotted line is Dutch, and other lines are the United Kingdom.
We can see around 1600 Dutch raised to the peak, and kept declining, and in the meantime, the United Kingdom kept rising and reach a peak at about 1850.

Estimates of Relative Standing of Great Empires

This chart includes the United Kingdom(GBR),Dutch(NLD),India(IND),Spain(ESP),French(FRA),Germany(DEU),Japan(JPN),the United States(USA)and China(CHN)’s long term data comparison. Data is from 1500 to now.

Highlight USA and China’ data, we can see from around 1950, China’s data and the USA’s data show a robust negative correlation relationship. According to this trend, China will rise to the top power in the future, and the USA will decline.

Global Venture Capital Investment in Leading Technologies

Leading Technologies:

  • Fintech, China is leading.
  • AI+Machine Learning, China is behind the USA and UK.
  • Wearables, China is behind the USA.
  • Virtual Reality, China is behind the USA.
  • Education Technology, China is behind the USA.
  • Autonomous Driving, China is behind the USA.

Global Unicorns

China’s Domestic Capital Markets and Foreign Holding of Chinese Assets

China/USA GDP Comparison (PPP-Adjusted)

According to Ray Dalio’s predict, China’s economy will overcome the USA, and lead the global economy. And the college of him ask him, at what circumstances the predict will failure, or China’s rising trend will be ended.

He said, maybe the conflict with the USA, climate change issues, pandemics, political disruptions, may affect the trend.

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