Ray Dalio thinks tech investors will have to choose between the U.S. and China

Silicon Valley’s love affair with China is headed for a rapid divorce. Venture investors won huge success backing some of the country’s most successful tech companies, like TikTok owner ByteDance. But sinking tensions between Washington and Beijing are now forcing investors to pick sides.

In August, the Biden administration barred U.S. investors from investing in Chinese companies working in semiconductors, quantum computing, and AI. And major Silicon Valley funds like Sequoia Capital and GGV Capital are now ditching their China business to protect themselves from political risk. 

Ray Dalio, billionaire investor and founder of hedge fund Bridgewater Associates, addressed Fortune’s Global Forum in Abu Dhabi and agreed that high-end tech investors will have to choose a side between Washington and Beijing. 

“That’s real,” he said Wednesday. “It’s a fact.” 

“It’s part of the policy of this new type of competition between the two powers.”

Dalio, who has long praised China’s economic development, has worried about conflict throughout the year. “We really were on the brink of war” last March, Dalio said. “Sanctions getting past a certain point … would be devastating for the world economy.”

Dalio mentioned his long track record of regular visits to China since 1984 and his visit last March. He said he is worried about “irreconcilable differences and certain things have happened since then … the devastation if you had a bad economic war, sanctions getting past a certain point, and the like would be devastating on the world economy, and the issue of military economy so that they [the U.S. and China] couldn’t even talk.”

He compared recent chip sanctions on China to the oil sanctions imposed on Imperial Japan ahead of the Second World War, repeating an argument he made earlier in the year.

Last October, the Biden administration ordered an export ban on advanced semiconductors to Chinese companies, in a bid to kneecap its rival’s chip industry. “Chips are like oil,” Dalio said on Wednesday.  

But now “there’s been an important stepping back” in U.S.-China tensions ahead of the mid-November meeting between U.S. president Joe Biden and Chinese president Xi Jinping around the APEC summit in San Francisco, Dalio said.

U.S. and China dialing back tensions

In recent months, China and the U.S. have tried to dial back tensions.

Both countries have agreed to set up working groups to talk through commerce and trade issues. Then, in mid-November, the two governments announced a new agreement on climate cooperation and pledged to restart military dialogue.

Xi also promised to curtail the export of materials used to make fentanyl. 

Dalio attended a private dinner with President Xi Jinping in San Francisco, alongside other business leaders like Apple CEO Tim Cook and Tesla CEO Elon Musk.

On Wednesday, Dalio said that Beijing’s strategy was now to pursue a “nonviolent war.” Citing Sun Tzu’s The Art of War, he said that China believes that “if you go through a military war, you weren’t smart enough to win without a military war.”

“The conflict is more like intense competition,” he suggested.

Yet even as the relationship between Beijing and Washington thaws slightly, the U.S.’s continued effort to constrain China’s tech sector will continue to be a drag on the relationship.

In October, the U.S. barred even more chips from being sold to China.

“The technology war isn’t going away, and how far it passes will be [a] constant terms of negotiations” between Washington and Beijing, Dalio said Wednesday.

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