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00:00Sure SHARMA He is the head of emerging markets and global macro at Morgan Stanley Investment Management. He is also the author of the book Breakout Nations In Pursuit of the Next Economic Miracles. He joins us now here in the studio. Sure. Great to have you with us. Good to be here. So all right so maybe we should just cut to the chase. Should we be more worried about China than anything else in the world right now. Yeah I think because the risks regarding Greece have been really well telegraphed for a while now and also the impact that Greece has on the rest of the global economy is very marginal as I wrote in that op ed the size of the Greek economy is no bigger than that of Bangladesh or Vietnam and the financial contagion risk really seems to be sort of backstopped by what the ECB has been doing since 2012. But now take the case of China. China has been the single largest contributor to global growth since the global financial crisis in 2008. And secondly that the stock market's freefall last week really had to be corrected by some of the most draconian measure that any government has ever taken try and put a floor on the stock market. But it did sort of question how much control do they really have over their economy and the stock market. And you as you describe in your op ed there was a Chinese put out there. So describe what you mean by that. What I mean is that if you talk to many people out here they sort of view is that he in China despite the massive buildup in debt over the last few years everything is different because the government controls everything out there. So the government will backstop all the losses that even the losses that the retail investors take they'll be able to backstop everything because they have so much money to do this. But if something spins out of control where it seems the government is not entirely in control of the situation that really questions the Beijing put that and we had a similar concept in the US if you remember with the Greenspan put in in the 1990s and much of the last decade when it appeared that every time the US would be in trouble the Fed would do something to rescue the economy until it couldn't. In 2007 2008 because of the massive buildup in debt. So I think China the fundamental problem remains is that no other developing country in history has tacked on as much debt as China has tacked on since 2008. If we take a look at what's going on in China with people making money where did they get to put their money they already put it in real estate and maybe they lost it or made it then they put it into the stock market maybe they lost it or they made it there. What's next . Well I think that my point is that this game is running out which is that this is really being a game of whack a mole where you sort of bang something up something else comes up. But this game really seems to be running out. So I think that's really a reason as to why I am much more concerned about China than I used to be that they're running out of growth drivers and they're running out of new avenues to where to put a lot of their excess capital. And some of the capital now has been leaving the country. As I wrote in that piece that this year a record amount of money has left the Chinese economy. And that may continue in the next few months. So if this does continue then cashier what are we talking about here a full blown recession in China. Well a recession has different definitions in different countries. But I think in China's case the economy today is possibly already growing at about 5 percent or so rather than the 7 percent headline number that we get to hear about. If you look at the other indicators and the Chinese economy could slow down by a point or two more in the next couple of years. So my big take is this that historically for the world the US economy has what might has mattered the most . So every single major global recession in the last 50 years has been caused by the US economy stumbling or going into a recession. My take is that the next couple of years the next global recession will be made in China just like many other things out in the world today are made in China. We said no thank you. Right. You can't I can't make the U.S. consumer bill this phone out right now . Exactly. So I think that's the entire issue which is that the global economy is doing well but I think China is a risk. All right Rishaad Salamat thank you so much. Morgan Stanley .

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Next Global Recession Will Be 'Made in China': Sharma

Ruchir Sharma, head of emerging markets at Morgan Stanley Investment Management, talks about the outlook for China's economy and markets. Sharma speaks with Pimm Fox and Betty Liu on Bloomberg Television's "Bloomberg Markets."

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