Photographer: Xinhua News Agency/Xinhua News Agency/Getty Images

China Is Mastering the Economic 'Difficult Dive': Bridgewater

  • Co-chief Investment Officer Bob Prince spoke at GIC conference
  • GIC started investing in Bridgewater more than 20 years ago

China so far has deftly navigated the challenge of maintaining economic growth while cleaning up its financial sector, according to Bob Prince, co-chief investment officer of the world’s largest hedge fund firm Bridgewater Associates.

“When you watch the Olympics, there is this Chinese diver that does the most difficult dive and does it perfectly,” Prince said in a YouTube video recorded at the sidelines of a conference hosted by GIC Pte and posted by Singapore’s state fund on Monday. “It’s a very complex thing to manage, they have done extraordinarily well in doing it. But it’s a hard dive.” A spokeswoman for GIC confirmed the statement.

Chinese industrial firms extended this year’s earnings surge as profits in August rose by the most in four years, offering leaders room to rein in excessive industrial capacity and curb speculative borrowing ahead of the key Party Congress next month. China, burdened with total borrowing of about 260 percent of gross domestic product, is trying to tackle high leverage by clamping down on bank lending and reining in its biggest dealmakers to discourage corporate borrowing.

Prince made the remarks at the Sept. 15 ‘GIC Insights’ conference -- almost a week before S&P Global Ratings cut China’s sovereign credit rating for the first time since 1999, citing the risks from soaring debt. The spokeswoman for GIC said that the state fund started investing in Bridgewater Associates more than 20 years ago.

“They are trying to restructure the economy, restructure the capital markets, restructure the debt, and keep the balance of payments stable,” Prince said about China’s efforts. “And the odds are in their favor, because they have shown the ability to do it.”

Bulls Versus Bears

Some global investors have been bullish on China even as others have stuck to bearish calls, citing high leverage in the financial system. Mark Yusko, whose Chapel Hill, North Carolina-based Morgan Creek Capital Management oversees about $2.5 billion, said bears are underestimating the ability of China to cancel or forgive its debts. Hedge fund managers such as Kyle Bass and Jim Chanos have continued to sound the alarm on leverage in China.

Bridgewater, which oversees about $162 billion, may seek approval to operate as a private securities fund manager in China and offer a Chinese version of its risk-parity All Weather strategy to mainland investors, a person with knowledge of the matter said this month. The All Weather fund, which seeks protection from market turmoil by investing in a combination of stocks, bonds and currencies, rose 11.6 percent last year.

The International Monetary Fund last month increased its estimate for China’s average annual growth rate through 2020, while warning that it would come at the cost of rising debt that increases medium-term risks to growth. This month, IMF Managing Director Christine Lagarde said at an event in Beijing that leaders are making critical efforts to rein in risk.

Prince also said that global economic conditions bode well for asset prices in Asia.

“Now, as we have global economies doing well and we have a lot of liquidity in the world, we have that kind of fertile conditions for capital flow into Asia,” he said. “And that’s what’s now happening. It has really just begun. And it’s very positive for the exchange rates, for the asset prices. And so, from a cyclical standpoint, it’s a very favorable set of conditions.”

Prince added that the outlook for Asia looks good because of strong drivers of long-term growth.

“Low indebtedness, hard-working, well-priced labor, innovation are the ingredients for long-term growth,” he said. “Asian economies measure well by those criteria.”

— With assistance by Xiaoqing Pi, Miao Han, Yinan Zhao, and Taylor Hall

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