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General Joseph Dunford (L), chairman of the US Joint Chiefs of Staff, and Chief of the General Staff of the Chinese People’s Liberation Army General Fang Fenghui shake hands after signing an agreement at the Bayi Building in Beijing.

China recovered much more rapidly from the Great Recession than other countries because of its financial flexibility, but now it’s the one holding the greatest amount of debt, a former policymaker said Friday.

“China saved during the good times so that when the crisis hit they had all the ammunition they needed to just really blast stimulus into the economy,” said David Dollar, who previously served as economic and financial emissary to China on behalf of the U.S. Treasury as well as country director for China and Mongolia at the World Bank. Dollar is now a senior fellow at the Brookings Institution.

To get out the recession, Dollar said China invested heavily in infrastructure and other investment projects to boost unemployment. “The unfortunate thing is they went too far – they didn’t just rebound they took their growth rate up to new higher levels.”

The result of that spending has contributed to China’s current record amount of debt. According to the International Monetary Fund, China’s total debt to GDP was 254% in 2017, which is higher than the emerging market average.

But not all debt is bad debt, said Ceyla Pazarbasioglu vice president of equitable growth, finance, and institutions at the World Bank Group.

Pazarbasioglu and Dollar spoke on a panel with former World Bank managers Ira Lieberman and Marcelo Selowsky which was held at Brookings on Friday. The panel titled “In Good Times Prepare for Crisis,” is the title of Lieberman’s recently published book.

“We need debt — without it we can’t grow, we can’t reach goals,” said Pazarbasioglu. Good debt, she said is used to finance public goods or for investments that have a high rate of return. “The bad debt is inefficient debt so white elephants a bridge to nowhere and inefficient ineffective lending. The ugly debt is the corrupt type of debt.”

Part of the problem with having for China, in particular, is that its debt accumulation reduces their ability to stimulate the economy by way of a fiscal stimulus.

Another factor that limits a government’s ability to fight against a recession is if they are defending against a fixed exchange rate, Lieberman said.

“Many crises have been deepened by a fixed peg or regime,” he said. China let its currency

CNYUSD, -0.0133%

 , the renminbi, trade in a narrow range.

Ultimately, Lieberman said that the overriding thesis of his book is “debt crises recur.”

“Policymakers and economic advisers are perhaps capable of mitigating the depth and the length of these crises but have shown little capacity to prevent them.”

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