China risks a debt deflation loop but could avoid a lost decade if it plays its cards right, Morgan Stanley says

• China's economy is at risk of falling into a debt-deflation loop, according to Morgan Stanley.
• That's a scenario where prices fall, debt rises, while economic growth stagnates.
• But policymakers could avoid that future if they keep interest rates below a key level.

China is potentially at risk of an economic catastrophe – but that could be avoided with the right policy moves, according to Morgan Stanley.