The economic system East Asian policymakers have put in place over the past 60 years has had both spectacular successes and equally spectacular failures. On the positive side, the “Asian development model,” as it is often called, generated what is probably the greatest surge of wealth in human history, wiped out poverty on an unprecedented scale and built industries at a spellbinding pace. On the downside, however, the model — by effectively subsidizing investment — also produces dizzying levels of debt, burdensome excess capacity and enfeebled financial sectors. That has resulted in severe financial crises, like the one suffered by 1990s Japan (the inventor of the Asian development model), from which it has still not fully recovered.

China, too, has followed this same model. In fact, Beijing has put it on steroids, by adding in a degree of state control that the Japanese would never have dreamed up. So that begs the obvious question: Will China face the same fate as Japan?

Strategists Naoki Kamiyama and David Cui at Bank of America-Merrill Lynch say the answer could be yes. “China’s development unfortunately has largely followed the script written by Japan some 30 years ago,” they wrote in a new report. As a result, “China today is facing many similar problems Japan did in the late 1980s and early 1990s — imbalanced growth, government stimulus, overcapacity, an overwrought housing market, and a severely under-capitalized financial system.”

Beijing today, the report contends, is creating these similar conditions by making similar policy mistakes Tokyo did more than 20 years ago. The Asian development model made both economies highly dependent on investment and exports for growth. In the 1980s, when Japanese exports struggled due to a stronger yen and slower global growth, Tokyo tried to keep the system going by flooding the economy with cheap credit. That led, ultimately, to an asset-price bubble.

Beijing has walked the same path. In response to the downturn following the 2008 financial crisis, China pumped up credit at home to offset the collapse of external demand. That held up growth rates, but also led to a scary spike in debt levels, excess capacity, and a surge in the property market. Kamiyama and Cui also contend that Chinese policymakers are repeating the errors their Japanese counterparts made to solve these problems. In Japan, the central bank hiked interest rates to control asset prices, producing a bust in the property market and blowing a hole in the balance sheets of Japanese banks. Then the government was too slow in acknowledging the extent of the problem. China is doing the same. The central bank has been tightening monetary policy to rein in property prices. The Merrill strategists fear that that decision is bursting China’s property bubble. “It appears that the property market seems to be tipping over,” they wrote.

Going further, Kamiyama and Cui make the case that the situation in China is more dangerous than it had been in Japan. “It appears to us that the problem facing China today may be more serious than Japan’s in the late 1980s and early 1990s,” they write. “China’s growth was more imbalanced, its reliance on external demand was heavier, the government’s monetary policy in response to the external demand shock was looser, debt growth was faster, over-capacity was worse, and asset price appreciation had been just as rapid.”

That means, they believe, that the consequences for the financial system in China could be more severe as well. “We suspect that China’s (nonperforming loan) ratio could be higher than Japan’s,” they forecast. “Japan’s reached over 8% some 10 years after the property bubble burst. In fact, judging from past experience in China, we could argue that the ultimate NPL ratio could be significantly into double-digit.”

The Merrill strategists also worry that China’s leaders aren’t taking the action to necessary to confront these problems. They believe the banks need to be given a boost of fresh capital to strengthen and prepare them for an onrush of bad loans, but they aren’t optimistic that Beijing will take such a step anytime soon.

On that point, they appear spot on. China’s leaders seem to be quite content with the current pace of reform in the country. Chinese Premier Li Keqiang told business leaders at the World Economic Forum in Tianjin on Wednesday that “the reform measures we have taken are good for now and make a hard landing less possible.” But there is a growing chorus of voices that argue the pace of reform in China is simply too slow. Jörg Wuttke, president of the European Union Chamber of Commerce in China, complained on Tuesday that even though China’s new leaders “have recaptured some of the necessary reform zeal … it’s now time that China’s leadership walks the talk.”

The fact is that China’s new leaders, for all of their bold statements, have done little to change the basic nature of the Chinese economy. It has been nearly two years since President Xi Jinping and his team began to take the country’s helm, and almost a year since an important party plenum unveiled a much-heralded policy document that promised sweeping change. But beyond some intriguing experiments — a few new private banks have got the greenlight, and there have been some preliminary steps to reform state-owned enterprises—there has been almost no progress towards making the Chinese economy more market-driven and more capable of fairly allocating resources and financing.

A much-touted free-trade zone in Shanghai, launched a year ago as an experiment in freer capital flows, has barely gotten off the ground. In some areas, policymakers seem to have moved backwards—most notably in market opening. The business environment appears to have become more nationalistic. Government agencies, for example, are widely perceived as wielding an anti-monopoly law against foreign companies to an unfair degree. The U.S. Chamber of Commerce recently complained that China’s anti-monopoly actions “often appear designed to advance industrial policy and boost national champions.”

There should be, at this stage, real concern about the ability or will of President Xi, Premier Li and their policymakers to undertake the fundamental reconstruction of the Chinese growth model necessary to avoid a Japan-style economic crisis. The Merrill study just provides more evidence that China is repeating the same mistakes and suffers from the same flaws of other economies that experienced financial crises. There will always be businessmen and economists who dismiss or downplay such concerns. These “panda huggers” argue that China is “different” and isn’t vulnerable to the same problems as other economies — that somehow the laws of economics don’t apply. But remember, that’s what experts used to say about Japan too.

Contact us at letters@time.com.