China needs stimulus with 'beautiful deleveraging' to avoid debt crisis, says Ray Dalio

China must employ a "beautiful deleveraging" in addition to its recent stimulus measures in order to avoid a debt crisis, said Bridgewater Associates founder Ray Dalio at a conference on Friday

The billionaire investor defines a "beautiful deleveraging" as a balanced approach to deficits that utilizes debt restructuring along with the printing of money and debt monetization. 

He said that while restructuring is deflationary, the creation of money is inflationary; thus, it is the best way to reduce debt burden. 

"That's the real interesting question of China, in terms of how it's approaching its debt issue," Dalio said, speaking at the FutureChina Global Forum in Singapore. 

"They have the capacity to do that, and I believe they have the willingness to do that. That's being demonstrated by [recent] policies," he added. 

Since the end of September, Beijing has announced several waves of stimulus and reform measures aimed at boosting its economy. 

"I think the changes that are taking place are terrific changes, but you still have to do the debt restructuring," Dalio said. 

In addition to Beijing's latest stimulus measures, markets have been watching to see if the policymakers will roll out a fiscal stimulus package, which some economists suggest should be as large as 10 trillion yuan ($1.4 trillion).

While it's easy to create money and credit and throw it into the economy, Dalio said that this could reinforce other problems. 

"You need to do it correctly, and that's as part of a restructuring. That becomes the challenging part of it. I think that will be the test." 

However, Dalio also outlined other challenges, including the fact that much of China's debt is at the local level as well as the country's aging population. 

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