In 2009, after the global financial crisis, China beat its 8% economic growth target while the West was economically gridlocked, caught up in debate in Washington D.C. The World Economic Forum that year marveled at the benefits that autocracies like China had over democracies in making executive decisions to protect and manage an economy. But it doesn’t look quite so marvelous from where we’re standing now, says Ruchir Sharma, the head of emerging markets and chief global strategist at Morgan Stanley Investment Management. China’s post-recession strategy is the very moment the so-called miracle of its economy began to end. There is no developing country in history that has taken on so much debt in such a short span of time, which leads Sharma to think there is a rough road ahead for China, and that those hard times may form a global ripple. Ruchir Sharma’s book is The Rise and Fall of Nations: Forces of Change in the Post-Crisis World.

Ruchir Sharma’s book is The Rise and Fall of Nations: Forces of Change in the Post-Crisis World.

What our research shows is that if you look back in history the single most important predictor of economic and financial trouble is when a country takes on too much debt over a short span of time. If a country does that it’s bound to make bad loans. It’s bound to make bad investment decisions because there’s no way that you can lend too much money and find enough credit worthy borrowers to make the right decisions with that money over a short span of time. So the exact way that we define this in the book is that if a nation takes on too much debt over a five-year time horizon the next five years typically tend to be very bad for a country. Now as far as China’s concerned there is no developing country in history which has taken on so much debt over such a short span of time as China as done in the after crisis era.

And so that’s why I remain so concerned about China which is that China’s debt is a share of its GDP keeps going up over time. And today it’s taking four dollars of debt to create a dollar of GDP growth in China. In the first quarter that number was as high as six to one. At the peak of the U.S. housing bubble in 2008 it was taking three dollars of debt to create a dollar of GDP growth in the United States. So that’s how addicted to debt China has become and why I remain so worried about China’s economic prospects going forward. So even though I was for much of my working life in all of China given how much China had achieved and how well it had done in many of the rules that I look at in the book from it’s consistent zeal for reforms, from the way that it’s leadership would keep changing and reenergizing itself every few years, from the way that it made use of its geography, from the fact that its demographics were quite favorable for many years and how it relied so much on a cheap currency to export its way to prosperity. But now my biggest concern is that like all economic miracles China is facing a point where the debt is so high that a miracle comes to an end.