BEIJING — As China struggles to revive its slowing economy, a growing number of consumers are opting for discount delicacies and affordable dining options, a trend that has gone viral on social media. The shift towards frugality is a symptom of a broader economic concern: China's economy is showing alarming similarities to Japan's during its "lost decades" of stagnant growth, deflation, and a burst real estate bubble.
China has reported its longest deflationary streak this century, with price growth near zero, prompting policymakers to urge consumers to spend. However, if consumers continue to prioritize saving over spending, companies will likely see decreased revenue, leading to reduced wages and a vicious cycle of economic stagnation. The Chinese government is under pressure to learn from Japan's experiences and avoid a similar fate.
Japan's economy boomed in the 1980s, fueled by cheap credit, a strong yen, and surging property and stock values. However, the bubble burst in the 1990s, leading to a balance sheet recession, characterized by a debt crisis, a burst property bubble, and a rush to safe-haven government debt. The resulting "lost decades" saw stagnant growth, low inflation, and an aging population.
China's economy is exhibiting similar signs, including a declining real estate market, low bond yields, and a growing aging population. The country's bond yields have been trending downward, reaching a record low at the start of the year, while new loans in July 2024 were actually negative, with more people paying back loans than taking out new ones. This is the first time this has happened in 19 years, and it can be traced to an endemic real estate crisis.
Despite these similarities, economists point to fundamental differences between China and Japan, including China's greater room for urbanization, larger domestic market, and technological advancements. Alibaba and Tencent, two of the world's leading tech platforms, are driving innovation, and China has more software developers than the US. While there is no guarantee that China will experience a technological revolution, these factors offer hope for a potential recovery.
Policymakers in China can learn from Japan's experiences and take proactive measures to avoid a similar fate. As one expert noted, "China doesn't have to go through that. We lost a generation in Japan because we didn't know what the disease was. The Chinese policymakers and the Chinese government now have a playbook to read on what exactly happened to Japan." With the right policies and strategies, China can potentially avoid the mistakes of the past and chart a new course for economic growth and development.
