Pedestrians walk past the national flag of China in Beijing. Kevin Frayer/Getty Images
- China’s faltering growth and real estate hurdles have drawn comparisons to Japan’s troubles in the 1990s.
- JPMorgan strategists said China risks “Japanization” if it doesn’t stabilize its real estate sector.
- But the key differences remain, and China’s economy has not yet reached the level of the Japanese crisis 30 years ago.
China’s flagging economy draws comparisons to Japan’s three decades ago, but experts say there are key differences between the two.
Beijing has yet to steer the world’s second-biggest economy into the post-pandemic rebound that many expected, and current hurdles include a volatile housing market, deflation and unfavorable demographics.
China’s National Bureau of Statistics reported that the consumer price index fell 0.3% annually in July, plunging the economy into deflation and reminiscent of Japan in the early 1990s. Recent data has even prompted Beijing to advise economists not to cast the latest data in an unfavorable light or speak of deflation, the Financial Times reported.
However, three decades ago, the Japanese economy faced a period of weak growth, a fall in asset prices and real estate problems that experts say were overall worse than the current scenario in China.
Just this year, Japanese stock markets have returned to near the 1990 highs. The Nikkei 225 broke through 30,000 in May for the first time in over three decades.
David Dollar, a senior fellow and China expert at the Brookings Institute, told Insider that China is facing “serious” economic problems, but they are not yet as bad as what Japan has seen.
“People are quick to make a comparison to Japan and the bubbles in China right now compared to the size of Japan’s,” Dollar said, noting that even if China’s growth slows down, he doesn’t think the analogy is fully justified.
JPMorgan strategists warned that if China is not to follow in Japan’s footsteps, China must stabilize its real estate market and deal with its aging population.
“An alarming signal is that second home prices in some cities have started falling again in recent months, after a tentative recovery in the first quarter of 2023,” the bank said. Strategists also pointed out that in 2019 in China, 12.6% of the population was aged 65 or older, which is consistent with 12.7% in Japan in 1991.
However, they found that China has advantages that Japan did not have. China has a comparatively lower rate of urbanization, implying greater potential for a renewed productivity boom and more scope for housing demand.
The country is also producing more STEM graduates and has a far larger domestic market and a more robust manufacturing sector than Japan did in the 1990s.
Importantly, the company does not rate China’s real estate sector nearly as overvalued as Japan’s when the economic bubble burst, a point Brookings’ dollar echoed.
“Remember,” Dollar said, “Tokyo used to be worth more than the entire United States. House prices in Japan fell by about two-thirds and the stock market is still not back to where it was in 1989. I just don’t think so.” “I don’t think we have the same real estate or stock bubble in China.”
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