China | Will Chinese economy enter into "Japanization"?

Summary

The recent data show that China is going into the coexistence of growth slowdown and deflation. Given China still has enough policy room, we do not think China will enter into "Japanization".

Key points

• Key points:
• July economic activities including industrial production, fixed asset investment and retail sales continue sliding.
• China’s ongoing economic slowdown is broad-based, from both supply and demand side. The economy was mainly dragged by sluggish retail sales and real estate market crash.
• Together with dipping export and import growth and the ongoing deflation environment, it suggests China’s previous strong recovery came to a halt amid the fading effect of reopening, calling for more policy stimulus at the central government level to revert the economic malaise.
• To solve the problems and to revert the current malaise calls for more monetary and fiscal policy support at the central government level to alleviate “balance sheet recession” of households and enterprises and to rebuild market confidence.
• However, we do not believe the Chinese economy will enter into “Japanization” with constant “balance sheet recession” and deflationary environment given China's policy room, but how to balance stimulus and financial stability is always a challenging job.

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