China, a Slow Moving Train Wreck: Ruchir Sharma

Ruchir Sharma, Chief Global Strategist at Morgan Stanley and the author of The Rise and Fall of Nations, says debt levels in China are “exploding on the upside.”

In an interview to BloombergQuint, Sharma, who last year warned of a global recession brewing in China, offers a key statistic to demonstrate the size of the problem. he says it now takes $6 of debt to create $1 of growth in China. That’s double the $3 it took America to create $1 of growth, at the height of the 2008 debt crisis.

In his latest book Sharma says ‘every extreme credit binge has resulted in slumping economic growth, often accompanied by a financial crisis’. When asked if a financial crisis is imminent in China, Sharma points to the fact that most of China’s debt is locally held and hence such a crisis, if it happens, is less likely to impact the global financial system, though it will hurt global growth. He adds that continuing stimulus measures have helped cushion China’s financial sector.