This was easy to see by anyone paying attention years ago as China ramped up mal-investment on a scale never seen before. I have reports some of it, click here for past items.
Recommend reading Mish's article titled "China's Shadow Banking System Collapses Exposing Numerous Ponzi Schemes; Implosion Reaches Critical Mass" and all the sub-articles.
Quote from Bloomberg Article that I found interesting, give a snapshot of the deflationary forces they face:
Only 3 percent of those companies are able to get bank loans, according to Citic Securities Co. (6030), the nation’s biggest publicly traded brokerage, with underground lending by family, friends and acquaintances largely funding the rest.
As growth from low-cost labor and productivity gains from adapting technologies developed abroad lose steam, China’s future expansion must rely more on an efficient distribution of capital, as well as on increased innovation and the development of service industries, the World Bank wrote in “China 2030,” a report published in February.
Tamping down underground lending as the economy cools poses risks, said Fred Hu, a Beijing-based economist and former greater China chairman at Goldman Sachs Group Inc.
“Shadow banking is much vilified, but without it the Chinese economy would have had a hard landing long ago,” Hu said. “The issue here is how to legitimize the sector and make it more transparent to reduce some of the potential downside risks, but not to shut it down. If the government were to try, that would do terrible damage to the economy.”
A recent video of Jim Chanos, my favorite investor deflationist.