Comparisons between China and Japan are not new, the Chinese economic miracle of the last 20 years has more than a couple of similarities with meteoric rise of post-war Japan. But the recent market turmoil has once again raised the question: “Is China going the same way of Japan?”
The parallels are compelling. In 1989, Japan – like China in 2015 – was seen as having an invincible economy rivaling that of the United States, and in both cases the growth was fast.
There have also been comparisons between the two countries’ property markets.
Just as Japan’s economy was toppled when its property boom ended in a catastrophic bust, some commentators fear there is a similar real estate bubble in China. Now that China has experienced its recent upset in the stock markets some fear there is a danger the country could enter a period of Japanese-style deflation.
Liu Li-Gang, chief economist at ANZ Greater China told CNBC that this may happen as the country shifts from its investment-led economic model to a consumption-led one.
Steve Forbes on the other hand says this is unlikely. The reason, he says, is the survival of the communist regime. This means the government would be willing to do anything to avoid the political disaster of a slowdown, which includes introducing massive reforms. Forbes said:
“Sooner rather than later, President Xi will have to push reforms on the scale of those China experienced in the mid-1990s. These will have to include major tax cuts and simplification, pulling back any boneheaded restrictions on the rise of online financial services, easing the process of starting a legal business and pushing harder–and more consistently–to liberalize capital markets.”
This, he argues, will help make China an economic juggernaut. Perhaps, but maybe we should also ask how bad will things have to get before Beijing is forced to bring in the reforms needed to avoid catastrophe – a Japan 2.0. Things in China may get worse before they get better.
Photo: Moyan Brenn