Typology of China Crisis

As I see China problem is overaccumulation of capital, lots of investments with negative rate of return if prices were right, which are artificially profitable due to huge distortions. As prices get corrected, productivity will reflect its true value, and output will drop. Thing is, that usually this process shows up as non-performing-loans in the financial sector. And as such, the way Government deals with financial sector rupture defines the shape of the economic crisis. That’s why I’m thinking how the forthcoming crisis will be.

1)      A la Lehman. If the political system is such that bailing out banks looks bad, Government may let some big bank fail. Financial intermediation stops, lights are turned off, the economy collapses. One year of deep recession. Plus two additional years of healing. But I doubt this would happen in China.

2)      Gangnam style.  Like in Korea, Government bails out big time, quickly cleans up all banks balance sheets, finding buyers for the banks it shut down. Recession lasts for only one year, and the economy rapidly resumes growth

3)      Lost Decade. Like Japan, China opts for a slow healing. They are proud of their millennium culture and fond of very slow changes, after all. Slowly reduce credit growth. Many years to clean up banks. A decade of slow growth.

I can't decide between 2 and 3. Celso, why do ya think?