This is an interesting theme that merits a bit of delving, as I shall do now. There are close similarities, several differences, same ending? 1/10 China’s economy is looking at a new wave of Japanification www.ft.com/content/ee9ef5bd-2e7d-4618-8f8f-952f721167a2

Japan offers a useful, if inexact, template for modern China. Both feature a similar development model, systemic bop surpluses, property boom and bust, and a growth to debt transition. 2/10

Both suffer (ed) from high levels of institutional rigidity featuring tight interlocking interests of state, banks, and corporates. Both pursue(d) macro/indust policies that restrained wage and salary income and consumption, and suppressed the cost of capital 3/10

Results? Chronic over-investment, misallocation of capital, bursting asset bubble. China’s fin system assets are 4 x GDP, though, > Japan’s 1990s peak of 2.5 x GDP. China’s property has just tipped over, but much >Japan,faces a long period of over-supply and softer demand4/10

China is though different. Wont have comparable banking crisis because of state-owned financial system. Closed cap account will help keep China against shocks. But growth-sapping costs of debt adjustment cant be brushed away and disruptive economic and social consequences. 5/10

China is much more pro-active with econ and financial regulation, which can help to manage difficult problems, but it is also keener on political control and regulation of business, which is the antithesis. 6/10

Otoh, China is poorer, less resilient. GDP is about 75 per cent of the US (=Japan 1995), but income per head is only 18 per cent compared with Japan’s 150 per cent (now 56 per cent). China has lower levels of educational attainment, higher levels of low pay, low skill jobs.7/10

Unlike Japan, China is a geopolitical rival of the US et al, faces a much more hostile external environment, export controls, sanctions, other commercial restraints. This is going to weigh on China in ways that it didnt re Japan 8/10

Remember how Americans once regarded Japan as innovative, long-term thinker more economically and technologically advanced. Officials and commentators feared it would go on to overwhelm and overtake their own country. 9/10

It didn’t quite work out that way for Japan. Bearing in mind the striking familiarity of everything, even with differences, it probably wont for China either 10/10 End.