- China’s sputtering growth and property market hurdles have led to comparisons with Japan’s troubles in the 1990s.
- JPMorgan strategists said China risks “Japanification” if it doesn’t stabilize its housing sector.
- But key differences remain and China’s economy isn’t yet at the level of Japan’s crisis 30 years ago.
China’s stumbling economy is drawing comparisons to Japan’s from three decades ago, but experts say key differences separate the two.
Beijing hasn’t yet been able to steer the world’s second largest economy into the post-pandemic rebound many had anticipated, and it counts a wobbling property market, deflation, and unfavorable demographics among its current hurdles.
China’s National Bureau of Statistics reported that the consumer price index dropped 0.3% annually in July, tipping the economy into deflation and fueling reminiscences of Japan in the early 1990s. Recent data has even pushed Beijing to tell economists not to paint recent data in an unfavorable light or talk about deflation, the Financial Times reported.
The Japanese economy three decades ago, however, faced a spell of weak growth, a decline in asset prices, and housing trouble that on balance was worse than China’s current scenario, according to experts.
Only this year have Japan’s stock markets returned within range of the highs seen in 1990. The Nikkei 225 breached the 30,000 mark 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 faces “serious” economic issues but they are not yet as dire as what Japan saw.
“People quickly go to a comparison with Japan, and whatever bubbles exists in China now versus the scale of Japan’s,” Dollar said, noting that he doesn’t think the analogy is fully justified even as growth in China slips.
JPMorgan strategists cautioned that China must stabilize its real estate market and address its aging population if it wants to avoid following in Japan’s footsteps.
“An alarming signal is that secondary home prices have started to fall again in some cities in recent months, after a tentative recovery in 1Q23,” the bank said. Strategists also pointed out that in 2019, China had 12.6% of its population aged 65 or older, in line with 1991 Japan’s 12.7%.
However, they noted that China has advantages working in its favor that Japan did not have. China has a comparably lower urbanization rate, which implies a higher upside for a renewed productivity boom and more room for housing demand.
The country also produces more STEM graduates and boasts a far larger domestic market and more robust manufacturing sector than Japan did in the 1990s.
Importantly, the firm doesn’t view China’s property sector as being nearly as overvalued as Japan’s was when its economic bubble burst, a point that Brookings’ Dollar echoed.
“Remember,” Dollar said, “Tokyo used to be worth more than the whole United States. Real estate prices in Japan fell about two-thirds, and the stock market still has never got back to where it was in 1989. I just don’t think we have the same real estate or stock bubble in China.”