30-Year National Bond Yield Surpasses Japan for the First Time... China, Economic Depression Concerns Intensify

China's 'Lost 30 Years' Scenario

China's long-term national bond yield has surpassed Japan's for the first time. Global investors are betting on the possibility that China, the world's second-largest economy, might slip into depression. According to the Financial Times on the 29th, China's 30-year national bond yield recorded 2.31% the previous day, surpassing Japan's 30-year national bond yield of 2.24%. This is the first time China and Japan have been reversed in the 30-year national bond yield.

China's 30-year national bond yield has been steadily declining from 4% at the end of 2020. The reason is that Chinese citizens are lowering the base rate to support the domestic economy, which is suffering from a real estate market slump and other issues. Additionally, Chinese investors are moving to safer assets like bonds from risky assets like stocks and real estate, reflecting concerns about the economy.

On the other hand, Japan's 30-year national bond yield, which had been below 1% for a long time, began to rise from early 2022. This is due to the normalization of communication policies after the long-term deflation.

Analysts say that China's long-term national bond yield falling below Japan's level means that the economic growth stage is significantly behind Japan's, indicating a rapid decline in growth potential. In the market, it is expected that China's deflation will not be easily resolved with the country's fiscal or communication policies. There is a forecast that China's long-term national bond yield may fall further.

In particular, recent specific indicators of China's economy are similar to the symptoms of a long-term recession that Japan experienced after the real estate bubble burst in the 1990s. In October, China's core inflation rate was 0.2% compared to the same period last year.

Joseph Lim, CIO of UBS Asset Management Asia, said, “China's national bond yield will gradually decrease,” and “it is impossible to be sure how the country will block deflation.” Donald Trump, the U.S. presidential candidate, also mentioned that the 10% tariff policy on Chinese imports could have a greater impact on China's growth rate.

Reporter Kim Rian knra@hankyung.com