Longtime China bull Ray Dalio says Beijing must now choose between “beautiful deleveraging” and economic malaise

Chinese stocks are on a tear. Hong Kong’s Hang Seng has risen 13.8% since September 25. The CSI 300, which tracks stocks traded on the Shenzhen and Shanghai exchanges, rose 24 percent before Chinese markets closed on the National Day holiday.

It’s the biggest gain in Chinese stocks since 2008, after China’s central government unleashed stimulus measures and policy pledges to both revive a stumbling post-pandemic Chinese economy and stabilize a stalled housing market in -a crisis for years. Beijing’s measures follow months of warnings from analysts and economists that the country needed much more political support to revive the economy and meet the official 5 percent growth target.

China’s policy pivot could be one for the “market economic history books,” Ray Dalio, founder of Bridgewater Associates, one of the world’s largest hedge funds, wrote in a LinkedIn post on Tuesday.

The longtime Chinese bull compared Beijing’s move to a 2012 pledge by European Central Bank President Mario Draghi to do “whatever it takes” to resolve the region’s sovereign debt problems, widely seen as a turning point in the crisis.

However, Dalio warned that China will need to do much more to fully address the country’s economic problems.

About two weeks ago, Dalio warned that China’s situation was “at least as bad as Japan’s since 1990,” noting that the country needed a “very complicated and politically charged” debt restructuring.

Dalio echoed the warning on Tuesday, saying China is now at a “fork in the road,” either choosing a “beautiful deleverage” or letting the debt crisis lead to a Japanese-style economic malaise.

China has an advantage, according to Bridgewater’s founder: Most of China’s bad debt is denominated in yuan, with borrowers and lenders often being Chinese nationals. But even then, a debt restructuring will be difficult and politically charged because it will have huge effects on people’s wealth.

Policy moves

Since September 24, Beijing has cut interest rates, lowered the reserve requirement ratio, which is the amount of cash banks must hold as reserves, and issued strong statements on stabilizing the housing market. Three Chinese cities subsequently made it easier for people to buy homes and six major Chinese banks are also adjusting mortgage rates on existing home loans.

At a Politburo meeting on Thursday, Chinese officials acknowledged that “new situations and problems have emerged in the current operation of the economy,” raising investors’ hopes that more policy support could come.

Hong Kong’s Hang Seng index rose 6.2 percent on Wednesday, with some Chinese developers posting gains of more than 15 percent. Markets in mainland China are closed for the National Day Golden Week holiday.

This story was originally featured on Fortune.com