Ray Dalio suggests that China needs to implement a "beautiful deleveraging" to prevent a debt crisis, according to a report.

• Ray Dalio suggests that China must implement a "beautiful deleveraging" in addition to its latest stimulus measures to prevent a debt crisis.
• The billionaire investor believes that a successful deleveraging would prevent China from experiencing the economic difficulties that Japan faced in the 90s.

In order to prevent a debt crisis, China should implement a "beautiful deleveraging" in addition to its recent stimulus measures, according to Ray Dalio, founder of Bridgewater Associates, who spoke at a conference on Friday.

A balanced approach to deficits that involves debt restructuring, printing money, and debt monetization is what the billionaire investor defines as a "beautiful deleveraging."

While restructuring is deflationary, creating money is inflationary, making it the best way to reduce debt burden.

Dalio stated at the FutureChina Global Forum in Singapore that the approach of China to its debt issue is the truly intriguing question.

He stated that they possess the ability and willingness to do that, as evidenced by recent policies.

Beijing has introduced multiple waves of stimulus and reform measures to revitalize its economy since the end of September.

Dalio stated that while he believes the changes happening are great, debt restructuring is still necessary.

The possibility of a 10 trillion yuan ($1.4 trillion) fiscal stimulus package has been closely monitored by markets in addition to Beijing's latest stimulus measures.

Dalio stated that while it is simple to generate money and credit and inject it into the economy, this could exacerbate existing issues.

"The challenging part of it is doing it correctly as part of a restructuring, which will be the test."

In addition to the challenges mentioned by Dalio, there are other issues, such as the high levels of debt at the local level and an aging population, that China must address.

Recently, the founder of Bridgewater cautioned that Beijing's stance towards capitalism has become less favorable in recent times.

On Friday, he stated that it is uncertain whether China can sustain the "vitality of private markets" and encourage entrepreneurship and creativity among individuals in capital markets.

Is it still "glorious to be rich in China"?

The government in Beijing has intensified its efforts to control the display of wealth. Historically, the government has taken measures to regulate wealthy entrepreneurs.

"The direction and plan are not yet clear, and there is a lot of uncertainty. More clarity is needed," he said to the conference.

Signs of good policy are discussions in China about tax reform and raising the retirement age, he said.

Dalio believes that a successful "beautiful deleveraging" could stimulate China's productive forces and prevent a debt crisis, as he stated in a social media post this month.

He believes that a mismanagement of debt restructuring could result in the economic and psychological downturn of 90's Japan, commonly known as "The Lost Decade."