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China Faces Lost Decade as Stocks Echo Japan: Chart of the Day

A customer looks at a newspaper article displayed on a white board in front of an electronic stock board at a security firm in Shanghai. Photographer: Tomohiro Ohsumi/Bloomberg
A customer looks at a newspaper article displayed on a white board in front of an electronic stock board at a security firm in Shanghai. Photographer: Tomohiro Ohsumi/Bloomberg

Feb. 26 (Bloomberg) -- China’s stock market is turning Japanese.

The CHART OF THE DAY shows the Shanghai Composite Index is repeating a pattern in the Nikkei 225 Stock Average during the 1980s and 1990s. The Japanese gauge tumbled as much as 80 percent from its 1989 peak as a collapse in home prices hobbled the nation’s financial system and led to a decade of tepid economic growth. The Shanghai index has dropped 60 percent since the end of 2007, erasing almost $2 trillion of market value.

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.

The Chinese stock market “seems to be saying that there is a significant risk of a major slowdown, and possibly even of a financial crisis,” John-Paul Smith, an emerging-market stock strategist at Deutsche Bank AG, who predicted the declines in developing-nation equities last year, said in an e-mail on Feb. 24. “The extent of unproductive investment in China today is much greater than was the case for Japan at a comparable phase of development.”

Societe Generale SA forecasts China’s economic expansion will slow to 5.5 percent by 2018, from 7.7 percent last year and an average of 10 percent over the past decade. Japan’s growth averaged 1.6 percent during the decade ended 2000, compared with 4.7 percent in the previous 10 years.

The Shanghai gauge tumbled 2 percent yesterday to the lowest level in four weeks amid speculation that a weaker property market will curb economic growth. The index has dropped 3.9 percent this year, while the MSCI All-Country World Index was little changed.

To contact the reporter on this story: Ye Xie in New York at yxie6@bloomberg.net

To contact the editor responsible for this story: Tal Barak Harif at tbarak@bloomberg.net

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