WorthyNews: Investors Alarmed Over China’s Economy (Worthy News Analyse)

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By Stefan J. Bos, Chief International Correspondent Worthy News

BEIJING (Worthy News) – Investors are reportedly increasingly concerned that China risks sliding into an economic malaise that could last decades.

Bloomberg News, the financial news service closely following developments in China, reported Thursday that investors in China’s $11 trillion government bond market “have never been so pessimistic” about the world’s second-largest economy.

Some market watchers fear the “Japanifation” of the economy, the term economists use to describe falling into the same deflationary trap of collapsed demand that caused the so-called “Lost Decades” in Japan.

Those “Lost Decades” broadly refer to the period from 1995 to 2023, when Japan’s annual gross domestic product fell from $5.33 trillion to roughly $4.21 trillion, Worthy News monitored.

Additionally, real wages reportedly fell around 11 percent while the Asian nation of roughly 1.4 billion people saw a stagnant or decreasing price level.

While an echo of post-bubble Japan is far from certain, the similarities are hard to ignore, according to a Bloomberg assessment.

“Both countries suffered from a real estate crash, weak private investment, tepid consumption, a massive debt overhang, and a rapidly aging population. Even investors who point to China’s tighter control over the economy as a reason for optimism worry that officials have been slow to act more forcefully.”

CLEAR LESSON

One clear lesson from Japan is that reviving growth becomes increasingly difficult when authorities wait to stamp out pessimism among investors, consumers, and businesses.

That seems an uphill battle for Communist-run China where freedom of expression, including about the economy, remains a challenge and economic activities are often micro-managed by the Chinese Communist Party, according to a Worthy News assessment.

Regardless of one’s views, experts say Japan’s fate during the “Lost Decades” between 1990 and 2010 offers a stark warning for investors in Chinese assets.

Borrowing from the state became perhaps less profitable after China’s “Politburo,” the Communist leadership, announced its most substantial commitment to rate cuts in over a decade. The yield on China’s 10-year bonds recently fell to a record low of 1.77 percent while longer-tenor yields also tumbled.

Investors are now confronting the risk of what once seemed unthinkable: China’s 10-year bond yields sinking below those of Japan, which currently pay around 1.04 percent, according to market watchers.

Even talks about ‘yields’ of zero surfaced, showing how dramatically things have changed in China’s bond markets and beyond.

Beijing may still hope that Chinese exports, including its electric vehicles to climate-change-scared Europe, could at least partly positively impact its economy.

Yet, with U.S. President-elect Donald J. Trump entering the White House and discussing imposing more tariffs on Chinese goods, Beijing’s trade relations with the West remain challenging.

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