Are we witnessing early signs of Japan-style deflation in China?

The comparison between China’s housing market and Japan’s property bubble of the early 1990s has been much debated, but has taken a new dimension following Evergrande’s recent default and China’s policy response to property market distress. Although this downturn is unlikely to translate into a debt crisis, as it did for Japan during the 1990s, we think that lower structural property growth coupled with tighter global liquidity conditions will prove to be deflationary and have meaningful global spillover effects.