Morgan Stanley has issued a dark, somber (yet sober) warning about the latest fear in Asia, i.e., the overheating of the Chinese economy and the disaster that could follow in its wake.

This topic is everywhere, including the front covers of Fortune and Business Week. And yet it seems no one is taking any notice.

This is urgent; it could affect the lives of all of us living and working in Asia, where so many stars have been hitched to the so-called unstoppable engine of the Chinese economic miracle. Morgan Stanley economist Stephen Roach writes, in near-apocalyptic language:

Asia is not prepared for a China-led slowdown, in my view. Midway through this two-week Asian tour, I am struck by a growing sense of complacency in the region. Memories are amazingly short these days. A seven-month run in the stock market did the trick, I guess. Not unlike the case in post-bubble America, the post-crisis Asian economy seems to have all but wiped out the painful lessons of five years ago. I spent a few days over this past weekend at the Boao Forum for Asia in Hainan, China — a relatively new pan-regional celebration of the Asian miracle modeled after the World Economic Forum in Davos. Heads of state and policy makers spoke eloquently and predictably of the new potential for pan-regional integration and resilience. But the real message, in my view, was the widespread acceptance of an unmistakably Chinese-centric character to the region’s growth dynamic. To some extent this is the inevitable outgrowth of the Asian crisis of 1997-98 — a region that has subsequently turned inward after having been burned by the hot-money capital flows from the West. There was a real sense of self-congratulations in the air in the halls of Boao. China’s spectacular performance over the past five years has given the rest of the region great confidence in the payback from such a strategy.

But there are no guarantees that this latest incarnation of the Asian model will perform any better over time than earlier growth strategies. If the slowdown in the Chinese economy materializes as we suspect, the rest of Asia will have to face the consequences of its new strain of dependency. And that could well unmask many of the region’s lingering structural deficiencies — namely, shaky financial systems and inefficient corporate sectors. Reluctant to embark on the heavy lifting of post-crisis restructuring, Asia thought it had found in China a new recipe for prosperity. As China now slows, my sense is that the region doesn’t have a clue as to what’s coming.

Wow. I’d have to agree; virtually all of the companies I meet tell me how their plans for revitalization and growth are based on those mythical 1.2 billion Chinese consumers, the Holy Grail of world trade. If that engine sputters, a lot of plans and hopes will be dashed.

Link via T-Salon — thanks!