Is China in danger of Japanification? What can Beijing’s policymakers do to avoid lost decades?
- Japan’s growth slowed significantly after its asset-price bubble burst at the end of 1989, with low inflation and interest rates largely driven by an ageing population
- Analysts have drawn parallels with China’s ongoing economic slowdown, which includes the deteriorating balance sheets of real estate companies
With China entering an era of slower growth, along with an ageing and shrinking workforce, weak consumer demand and a property market downturn, analysts are drawing strong parallels with Japan and raising the daunting prospect that the world’s second-largest economy could be heading for a similar so-called lost decades of stagnation.
Japan’s growth slowed significantly after its asset price bubble burst at the end of 1989, with companies and households burdened by debt preferring to pay off their liabilities rather than spend money on goods and services. Its working-aged population was also declining, but debt continued to balloon.
And in its “Fiscal Monitor” report in April, the International Monetary Fund estimated that Japan’s public debt to gross domestic product ratio would continue to rise and would hit 258.2 per cent in 2023 - the highest in all advanced economies.
China and Japan have pursued the same economic model – one that relies on high savings and high investment, with the governments also pushing for supply side measures that are designed to bolster exports.
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One of the key differences, however, is that China’s credit boom was largely extended to state-owned or controlled companies, including local governments, meaning they only stop borrowing if instructed.
