Briefing | opinion

It's time to stop listening to Ray Dalio on China

  • In a post on LinkedIn, billionaire hedge-fund manager Ray Dalio said the US should continue to invest in China’s growth, even though its “culture” is increasingly antithetical to ours.
  • What Dalio calls “culture” is actually a creeping authoritarianism that has led China only into a world of pain and is an affront to American democracy.

For years, Ray Dalio – the founder of Bridgewater, the world’s biggest hedge fund – has used his master of the universe soapbox to wax philosophical about the Chinese economy and its epic growth story.

It’s time to stop listening.

In a recent LinkedIn post,Dalio said investors should look past the US-China trade war and the volatility it has caused markets, and instead focus on managing the two countries’ diverging cultures in a productive, beneficial way.

The US, he wrote, is a culture of individual liberty, where as China is this …

From the post:

“One of China’s leaders who explained this concept to me told that the word ‘country’ consists of two characters, state and family, which influences how they view their role in looking after their state/family. One might say that the Chinese government is paternal.

For example, it regulates what types of video games are watched by children and how many hours a day they play them. As a broad generalization, when the interest of the country (like the family) is at odds with the interest of the individual, the interest of the country (like the interest of the family) should be favoured over the interest of the individual.

Individuals are parts of a greater machine. As a result of this perspective, the system seeks to develop, promote and reward good character and good citizenship. For example it gives people a social credit score that rates the quality of their citizenship. And each person is expected to view themselves as parts of the greater whole.”

He added: “I’m not saying which system is better.”

Dalio said this cultural mindset is what has made China so successful for so long. Never mind that the Chinese communist experiment as we know it is only a few decades old, decades that were preceded by some of the bloodiest terror the world has ever seen, by Mao Zedong’s brutal reeducation camps, by civil war, and by economic ruin.

And never mind that the Chinese surveillance state is a product of President Xi Jinping’s growing power – just like his anti-corruption drive, just like the removal of his term limits. It is not a kind of cultural fait accompli. It is a political choice that crept up on a world that (perhaps) naively expected Xi to follow in his predecessors’ footsteps and continue to open up the country.

That’s what makes Dalio difficult to follow. On the one hand, in this essay, he said China’s openness has made it a miracle. At the same time, he said this authoritarian bent is part of its culture that we must accept.

Either way, China, as he described it, is not the China it was when he first encountered it 34 years ago.

An example: Xi is presiding over the creation of a digital-surveillance state so powerful that it faces a shortage of low-wage workers to find forbidden internet content in China’s “censorship factories.”

You see, these workers have been such good citizens that they don’t even know what content to censor (Tiananmen Square, for example). They have to learn the truth first, then they can make sure none of their countrymen stumble on it by accident.

The digital-surveillance state is not an essential part of Chinese “culture.” China (through Dalio and any of its other willing friends in the US) is merely taking a page out of an old authoritarian playbook. It is reinterpreting culture at its convenience and using it as an excuse to explain away a form of state control that makes Americans incredibly uncomfortable and makes the country incredibly dangerous. (As I write this, the US has just increased its travel warning for citizens going to China.)

Chinese culture, with authoritarian characteristics

Americans should be uncomfortable with this interpretation of Chinese culture. There’s a reason why Google employees rebelled against creating a censored Chinese search engine, for example. We are a country that believes in the concept of negative liberty, as philosopher Isaiah Berlin explained it. When we’re being our best selves, we believe that individuals should have freedom from harm, from surveillance, from being taken advantage of, from being discriminated against, things like that.

Other than that, do what you want.

China’s government is now creating a structure based on the opposite concept – positive liberty. With positive liberty you’re free to do x, y, and z – and you cannot deviate.

For example, in China you’re free to be part of the Communist Party – but that’s it. You’re allowed to be culturally Chinese – and that’s it. You certainly cannot be a Muslim living in Xinjiang, because that gets you sent to a reeducation camp. The government dictates what you can and should be in China. This is how authoritarians exercise their control – it is not a culture, it is a power structure.

And as China edits its list of things you can and cannot be under Xi’s regime, the victors of China’s economic rise have had cause for worry. Even before Xi’s corruption drive – which critics said was a vehicle for purging his enemies – private-sector entrepreneurs knew that power-hungry state-owned enterprises and a lack of rule of law could spell disaster for them.

Last February, Zhang Wenzhong, the 56-year-old founder of Wumart Stores, one of the country’s biggest retailers, told a forum of entrepreneurs that he still fears for the future of China’s private sector. Zhang had just finished serving seven years in prison for fraud, bribery, and embezzlement.

“Without outside intervention or influence, no law enforcement agency – police, prosecutors, or courts – would have reached such a verdict against me under normal circumstances, creating a case so unjust that it is now easily judged as a mistake,” he told the annual gathering in northeastern Heilongjiang in February, according to the South China Morning Post (SCMP).

As SCMP pointed out, entrepreneurs at the very top of Chinese society worry their “original sin” – the way they became rich – will suddenly fall out of favour with Xi’s new government. Xi has committed the party to his interpretation of Chinese Communist purity with vigour. Academics who once found the space to be critical of China are leaving the country. This is something Ray Dalio would have us ignore.

Things are changing in China, and not in the direction that makes it a good business partner or investment. It is changing in a way that tests the bounds of American pluralism – our ability to accept and recognise systems and values that are not like ours – and perhaps breaks them.

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