Is China slipping into Japanification?

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Are we about to see China repeat Japan’s 1990s deflationary slump? Investors certainly think so, with bond yields sinking to crisis-era lows. There’s now a 300-basis-point gap between Chinese and US 10-year yields – and it keeps widening. Some fear this signals decades of stalled growth, just like Japan’s lost decades.

China’s property woes, weak investment and ageing population only deepen the parallels. Beijing has rolled out stimulus but many say it’s not nearly bold enough. Confidence is a fragile thing – once it goes, it can spiral out of control. Sure, some economists argue that China still has tools to stave off a prolonged slump, but waiting too long could turn worry into reality. Japan’s experience taught us that once deflation sets in, it’s stubbornly hard to reverse. We’ll soon see if China can pivot swiftly enough to avoid repeating that painful history.