Chinese President Xi Jinping attends the Roundtable Summit Phase One Sessions of the Belt and Road Forum. Photo: Reuters, Lintao Zhang

The most tantalizing economic question in Asia is which nations are most at risk of a Japan-like lost decade.

South Korea, beset in recent years by political paralysis, often tops the list. Thailand’s inward turn under the military junta that’s run the place since 2014 comes up, as does a Malaysia under the leadership of scandal-plagued leader more focused on survival than reform.

And it’s not clear, let’s be frank, that Tokyo has internalized the lessons from its perma-funk. But nothing sends shudders down investors’ spines like the idea of China falling into a deflationary debt trap.

To be sure, investors haven’t gotten rich from the China-crash trade.

From Gordon Chang’s 2001 “The Coming Collapse of China” book to short-seller Kyle Bass of Hayman Capital Management warning nowadays that we may be approaching point where “hell breaks loose,” Beijing has a knack for confounding the bears.

But what if Xi Jinping’s ability to beat the laws of economic gravity has run its course?

But what if Xi Jinping’s ability to beat the laws of economic gravity has run its course?

That’s the gist of a new report from Nomura’s Rob Subbaraman and Michael Loo. The analysts warn that China and Hong Kong top the list of economies most at risk of a financial crisis over the next 12 quarters.

The problem? A reform big bang that’s more rhetorical than substantive and slow progress reining in the excesses of Beijing’s state-owned enterprises.

“Whether China is willing to tolerate some short-term pain for long-term gain, by persevering with deleveraging, closing zombie companies and letting markets play a more decisive role, remains to be seen,” Subbaraman and Loo argue.

“The one thing that is clear is that the longer China delays, the bigger the risk of disruptive adjustments from which the contagion to the rest of Asia could be substantial.”

Talk about an understatement. Even if China manages to eke out 5%-plus growth between now and 2020, internal dynamics are likely to disappoint the Janet Yellen’s and Mario Draghi’s of the world.

As inflation in the US, Europe and, of course, Japan disappoints, there’s been hope China would fill the pricing-power void. Hardly, as consumer price rose just 1.5% in June. Given the margin of error for inflation gauges in developing economies it could be much lower than that.

What matters is the trajectory. As China’s overcapacity woes grow -– and spill over into the global economy — so does its negative influence on price levels.

What matters is the trajectory. As China’s overcapacity woes grow -– and spill over into the global economy — so does its negative influence on price levels.

Nomura’s warning comes the same week Standard & Poor’s pointed out that Xi’s team is facing “significant obstacles” in curbing runaway credit growth and getting a handle on financial risks.

S&P’s key concern is this: commitments to deleverage are no match for Beijing’s roughly 6.5% growth imperative.

Credit is expanding apace, in direct contradiction with Beijing’s pledges to cap it, as Xi’s team supports state-owned enterprises and local governments facing weakening demand.

That’s the same mistake, remember, that Southeast Asia made before 1997, putting rapid growth before retooling economies.

In many ways, Xi’s problem is more political than financial. That 6.5% is the source of the Communist Party’s legitimacy with 1.4 billion mainlanders.

Any sweeping effort to replace exports and smokestack industries with services would require greater tolerance for less gross domestic product.

It requires Xi tolerating the ire of party bigwigs profiting greatly off the status quo. In other words, courage to take on the political status quo must front-run big efforts to recalibrate growth engines.

All this foot-dragging is imperiling Hong Kong, too.

Twenty years after the handover, it’s clear hopes Hong Kong would change China didn’t pan out.

Rather, Beijing is remaking Hong Kong in its image. It also, however, has increased linkages to the city in ways that raise Hong Kong’s risk profile -– including stock-connect schemes and mainland cash pushing apartment prices away from most Hong Kongers.

As China’s fragilities imperil Asia, Hong Kong is directly in harm’s way. Interesting to think that rather than discovering and emulating Hong Kong’s winning free-market model, China risks getting lost.

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