The parallels with Japan in the 1990s are stunning, but China has advantages, which reforms can help realise.
One of the biggest impediments to China’s economic growth is its property market crisis, which is at least as serious as was Japan’s during the 1990s.
In a recent talk at the Centre for China and Globalisation, a Beijing think-tank, the economist and China scholar Stephen Roach – former chairman of Morgan Stanley Asia, who is now at Yale University – laid out the long list of similarities. Finally, both Japan and China have faced trade conflicts, particularly with the US: Japan in the 1970s and 1980s, and China, today.
In Japan, the crisis dragged on for almost 19 years. But the government was slow to act – it was not until 1999 that a Resolution and Collection Corporation to manage non-performing loans began operations – almost a decade after the crisis had started. Property accounts for some 70 per cent of household wealth in China versus 50 per cent in Japan in 1990. PHOTO: AFP
Mr Roach proposes that, based on the experience of what happened with property crises both in Japan and in the US during the sub-prime crisis of 2008 to 2009, what China will need is a “big bazooka” – a large financing package that errs on the side of doing too much, rather than too little.With demographics worsening, more of China’s growth in the future will have to be driven by productivity.
On trade, China faces a far more hostile environment than Japan did in the 1980s. Plus, in China’s case, the frictions extend well beyond trade, and include technology, investment, security issues and even scientific and academic cooperation.
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