China"s economy faces severe debt issues like Japan in 1990

Ray Dalio, founder of Bridgewater, expressed concerns about China's economy during a panel at the Milken Institute Asia Summit 2024 in Singapore. He highlighted that local governments are struggling to manage their debt due to a property crisis that has hindered their ability to generate revenue through land sales. This situation mirrors Japan's economic troubles that began in 1990, raising fears of a similar prolonged stagnation for China. Dalio noted that over 80% of state spending is managed by provinces and local governments, which may require debt restructuring and potential forgiveness for creditors. He emphasized the complexity and political sensitivity of such a restructuring process, indicating that it could lead to significant financial repercussions. Additionally, he pointed out that Chinese households, traditionally invested heavily in property, are now reluctant to spend, further stifling economic growth. This shift in consumer behavior is a critical factor that needs to change for the economy to recover, as households are currently hoarding cash instead of investing or spending. In contrast, Dalio offered a more optimistic view of the U.S. economy, acknowledging its own challenges, such as income inequality and political divisions. He advised investors to diversify their portfolios to mitigate risks, while also recognizing the positive aspects of the U.S. system, including its rule of law and capital markets.