“The extent of unproductive investment in China today is much greater than was the case for Japan at a comparable phase of development,” warns Deutsche’s EM strategist John-Paul Smith, and one glance at the chart below suggests China is tracing an ominous path towards the same “lost-decade” that un-inspired Japan since the mid-80s. While the PBOC is less interested in goosing its own stock market (since ownership is so low), Chinese stocks (down 60% from 2007 highs) “seem to be saying that there is a significant risk of a major slowdown.”
As Bloomberg adds, China’s lending surge over the past five years has evoked comparisons to the debt growth in Japan before its lost decade. Credit in the biggest emerging economy rose to 187 percent of gross domestic product in 2012 from 105 percent in 2000, compared with Japan’s increase to 176 percent in 1990 from 127 percent in 1980, according to JPMorgan Chase & Co.
