Investors in China’s $11 trillion government bond market have never been so pessimistic about the world’s second-largest economy, with some now piling into bets on a deflationary spiral mirroring Japan’s in the 1990s. Yields on Chinese sovereign bonds maturing in 10 years have tumbled in recent weeks to all-time lows, creating an unprecedented 300-basis-point gap with US peers, despite a slew of economic stimulus measures announced by President Xi Jinping’s government. The plunge, which has dragged Chinese yields far below levels reached during the 2008 global financial crisis and the Covid pandemic, underscores growing concern that policymakers will fail to stop China from sliding into an economic malaise that could last decades.
If the bond market is right, the implications would be profound. An extended bout of deflation would hobble one of the world’s biggest economic growth engines, add new strains on social stability in the second-most populous country and exacerbate capital outflows that led to a record exodus from Chinese financial markets at the end of last year.
In a sign of how seriously investors are taking the risk of Japanification, China’s 10 largest brokerages have all produced research on the neighboring country’s lost decades. Richard Koo, an economist well-known for drawing parallels between the two countries, said he has been approached by Chinese companies and think tanks to share his views. Goldman Sachs Group Inc. this week said Japan’s case offers a “valuable playbook” for Chinese stock investors who’ve been rattled by the worst start to a year in nearly a decade. While an echo of post-bubble Japan is far from certain, the similarities are hard to ignore. 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. One clear lesson from Japan: Reviving growth becomes increasingly difficult the longer authorities wait to stamp out pessimism among investors, consumers and businesses. “It’s a downward spiral that will keep getting worse if it’s not corrected,” said Xin-Yao Ng, a Singapore-based investment director at abrdn Plc, which oversees $494 billion globally. “There’s a psychological element to Japan’s lessons where the longer this persists, the weaker business and consumer confidence gets.” China’s markets have entered 2025 on a knife edge. With the benchmark 10-year yield falling below 1.6% for the first time, pundits have floated the once-unthinkable prospect of yields near zero. The CSI 300 Index of equities lost 3.5% in the first four sessions of the year, while the offshore yuan is trading near a record low — prompting authorities to push back against declines this week. NN: Makes it hard to see with deep slow down coming where China will import more oil.
German factory orders down 5.4% in November
Seasonally and price-adjusted new factory orders in Germany fell by 5.4% in November compared to the previous month, the country’s Federal Statistical Office Destatis revealed in its report on Wednesday. New orders declined by 1.7% compared to the same month in the previous year. Domestic orders rose by 3.8% in the reported month compared to October, while foreign orders dropped by 10.8%. New orders from the euro area decreased by 3.8%, while orders from outside the Eurozone tumbled by 14.8%. According to the report, the main contributor to the decrease in factory orders in November was a sharp fall of 58.4% in orders for other vehicle construction, including aircraft, ships, trains, and military vehicles, due to October orders in this sector not materializing. Meanwhile, new orders for intermediate goods increased by 1.8% in November month-on-month, while the orders for consumer goods and capital goods were down by 7.1% and 9.4%, respectively. NN: Makes it hard to see with deep slow down coming where Germany/EU will import more oil.