Noted US investor has optimistic view of bilateral relations

Ray Dalio, the founder of Bridgewater Associates, said he is "more optimistic than pessimistic" about the future of the relationship between the world's two largest economies, which have a "tremendous" opportunity for cooperation.

The renowned hedge fund manager and global macro investor, who has recently warned that anti-China bias has blinded too many for too long to opportunities, said developing a win-win relationship is the most sensible thing to do given historical lessons.

He made the comments Tuesday evening at the start of a China Town Hall series hosted by the National Committee on US-China Relations (NCUSCR).

The series will focus on specific issues in China-US relations: economics and trade, climate and health, and society and culture.

"Today's program comes at a critical time in US-China relations with the election of a new president," NCUSR President Steve Orlins said at the beginning of the 14th annual event Tuesday evening.

"Both countries have the ability to improve the relationship for the benefit of both peoples," he said.

China and the US have seen their relations fall to the lowest point since they forged diplomatic relations in 1979, with some US politicians portraying China even as an enemy, culminating with the shuttering of a consulate by each country in July.

Dalio recalled the "Thucydides Trap" that in the last 500 years, there were 16 times where a rising power challenged an existing power, and 12 of those times they had military wars; in four, they didn't.

"If we can look at those times that they didn't, and the need for overwhelming, and recognize and remember history, remember how terrible those are, and how good win-win relationships are and we can evolve without those kinds of things, which I think is most likely, it's the most sensible thing to do," he said.

"Then we will both evolve, and will evolve together probably with arguments, but it'll be OK. That is an optimistic scenario for me," Dalio told the online audience.

Orlins of the NCUSCR said he "very much" hoped the US administration will heed the optimistic tone and work toward achieving the promising scenario.

"You know, my answer is always it depends on what the Chinese government does, it depends on what the US government does, and it depends on the people, the people relationships that are so strong and hopefully will get stronger," Orlins said.

To a question from a participant in Middlebury, Vermont, about areas of cooperation between the two powers, Dalio said there's tremendous opportunity.

"It almost goes back to ping-pong diplomacy, but the idea of dealing with climate change, that's a common interest. Not only this pandemic, but global health issues," he said.

The re-establishment of communications and looking for areas of cooperation would go a long way toward improving the psychology and demonstrating the win-win potential of those relationships, he added.

Dalio, who is overweight China in his investment portfolio, encourages others also to look at the Chinese markets, which he said are underinvested, and the country will "inevitably" catch up as a power in reserve currency and as a financial center.

"China's capital markets are opening up to foreigners and non-Chinese investors who are underweighted in them," he said.

While in 2015, only 1 percent of the markets in China were accessible to foreign investors, now more than 60 percent are available to them, Dalio noted.

Though China accounts for roughly 15 percent of world equity market capitalization, it accounts only for a couple of percent of global investors' portfolios, according to Dalio.

Dalio made similar points in an opinion published in the Financial Times late last month, in which he said the world is underweight Chinese stocks and bonds, and that discrepancy is at least due in part anti-China bias, a situation he believed "is about to change".

"As a result, I expect China to enjoy favorable capital inflows that will support the currency, already at a two-year high, and financial markets, too. All this argues for a China overweight in my portfolio," he wrote.

"Prejudice and bias always blind people to opportunity. So, if you have been a China sceptic for reasons that don't square with what is happening there, I suggest you clear your mind," he added.

At the town hall, Dalio briefly analyzed the most powerful reserve-currency empires over the past 500 years, based on eight gauges of power — education, innovation and technology, competitiveness, military, trade, output, financial center, and reserve status.

"I would like to draw your attention to the two that are lagging the other measures of power in China. They are the power of the reserve currency and the power of the financial markets in the financial sector," he said. "These powers traditionally lag other powers but inevitably catch up."

The renminbi, China's currency, accounts for only about 2 percent of world trade financing while the dollar accounts for over 50 percent, according to Dalio.

"I expect that to change as China moves to internationalize the renminbi and open up its capital account," he said.