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Axiom's Gordon Johnson Says 'A Significant Slowdown In China Is Coming'

iShares FTSE/Xinhua China 25 Index Fund ETF ETF:FXI, Direxion Daily China 3X Bear Shares ETF ETF:YANG - Axiom's Gordon Johnson Says 'A Significant Slowdown In China Is Coming'

During Benzinga's Pre-Market Prep radio show, Axiom analyst Gordon Johnson shared his thoughts on China's dark future. These comments came after Johnson explained his startling $33.00 price target for Caterpillar Inc. CAT 2.27% compared to where it was trading Friday afternoon at $71.10.

Despite commodity prices rising on China's reflation attempts, Johnson said he did not believe reflation would happen any time soon. "The reality is, what china has done is unprecedented, and they can't stimulate their way out of this," the Axiom analyst claimed.

Without Credit, Chinese Growth is Zero

Credit, China's main source of economic stimulation, was recently reported at "about half the amount of what the market perceived," stated Johnson. After referring to how China experienced GDP growth at about one-sixth the rate of its credit growth over the last three years, the analyst claimed Chinese growth cannot survive without continuous high amounts of borrowing.

Now the majority of new debt is paying for the interest on China's existing debt rather than helping the economy, the Axiom analyst said.

Due to these concerns, Johnson claimed China would never fully recover to all-time high GDP growth levels until the nation reduces its heavy reliance on credit for stimulating growth.

© 2016 Benzinga does not provide investment advice. All rights reserved.