Why China May Soon Go the Way of Japan

China is weaker than it appears and “may be entering into an asset-deflation phase” like Japan’s, says a report today by two analysts at Bank of America Merrill Lynch(BAC). China has vaulted ahead of Japan to become the world’s second-largest economy after the U.S. But like Japan, says the Merrill Lynch report, China is marked by “imbalanced growth, government stimulus, overcapacity, an overwrought housing market, and a severely under-capitalized financial system.”