The Soc Gen global strategist said the difference between China's real and nominal gross domestic product (GDP) shrunk to 0.5 percent year-on-year in the second quarter - notably weaker than recent consumer prices data - indicating that China was nearing deflation territory.
"It is becoming apparent that China, on this data, is within a hair's breadth of outright deflation," he wrote. China's real GDP slowed to 7.5 percent year-on-year in the second quarter, while its nominal GDP slowed to 8 percent.
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Currency dynamics have added to the risk of deflation, according to Edwards, with China's yuan heavily impacted by Japan's deliberate devaluation efforts.
"We identify China as suffering from excessive currency strength relative to regional competitors, both in nominal, and most especially, in real terms, as wage inflation ripped upwards a few years back," he wrote.
Since the beginning of the year, the yuan has risen by 1.43 percent against the dollar, at a time when most emerging market (EM) currencies have experienced a massive sell-off.
However, Edwards said the EM region as a whole was starting to look more attractive, despite describing himself as a "long-time skeptic of emerging markets".
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"Despite more macro pain to come, the EM universe is beginning to look cheap, and certainly much more attractive than developed markets," he wrote.
EM currencies, equities and bonds have been hit hard this year by concerns over Fed tapering, slowing growth in China and weakening commodity prices. The MSCI emerging markets index has fallen by over 11.5 percent since January.
Referring back to a research note of November 2011, in which Edwards jokingly gave the economies of Brazil, Russia, India and China a new name, he added on Thursday: "BRICs might not now be the Bloody Ridiculous Investment Concept they once were."
-- By CNBC's Katrina Bishop. Follow her on Twitter