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The similarity between China now and Japan 1990 is very noticeable. That is, they're both exporting country that has an aging demographic which likes to save,
by sharetea 11y ago
The similarity between China now and Japan 1990 is very noticeable. That is, they're both exporting country that has an aging demographic which likes to save, has a small consumer base compared to export, and is losing export shares as production moves out of country to other cheaper countries. And they both choose to save the banking system instead of letting it self correct. This means that China will likely see 10-20 years of deflationary decline just like Japan. However, because China suffers from massive capital outflow from rich leaving the country, and it already has reached very high debt to GDP ratio (something Japan reached only years later after 1990), I would say China is in even worse shape than Japan in 1990.
- peteretep 11y agoThere's a real difference in the military stance, though. Governments who'll countenance military action often turn to it to build popular support, an option that wasn't meaningfully available to 90's Japan.
- LiweiZ 11y agoThey are very different countries. Putting them into the same category seems not a good starting point, if one really wants to dig deep. Of course, it's easier to have a rough idea with this approach for many.
- jpatokal 11y agoThere are other differences: Japan was essentially a fully developed nation by the time the crash hit, while large parts of China are not. Also, Japan has a more or less functioning democracy capable of letting its people changing those in power peacefully, while China does not.
- toyg 11y ago"Changing" up to a point -- the LDP has been in power continuously until 2009. What people could do was just to force occasional reshuffles, which is not very different from what the Chinese can do today.
- peteretep 11y ago> Japan has a more or less functioning democracy I note that the same party was in power for 55 years prior to 2009.
- ttflee 11y agoFor stock markets in the two countries, no, they are different. The stock market in China was remarked as 'worse than a casino' by a Chinese economist, Wu Jinglian.
- cynicalkane 11y ago> they both choose to save the banking system instead of letting it self correct People keep saying this but few governments in modern financial history have gotten away with letting the system "self correct". Normally it's a recipe for deep depressions or long recessions. Some economists have a recommendation: letting the system self-correct might produce positive long-term results if you print enormous amounts of money to replace the missing credit--enough to cause potentially double digit inflation. But usually, the let-everyone-die crowd doesn't believe in monetary policy; they're just advocating old economics from 1929 that usually fails.
- hackuser 11y ago> People keep saying this but few governments in modern financial history have gotten away with letting the system "self correct". Normally it's a recipe for deep depressions or long recessions. I'd go further and say it's lazy and highly irresponsible. We could (and as humans, tend to) say the same about famine and war, for example, or any situation where others are doing the suffering. You may have heard the line, 'in the long run, we are all dead'. The full quote from John Maynard Keynes, one of history's leading economists, was a response to such an idea: But this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the sea is flat again. I think that's a valuable guide to any situation, not only to economic problems.
- xhrpost 11y ago> it already has reached very high debt to GDP ratio (something Japan reached only years later after 1990) Could you elaborate on this? China has a pretty low national debt the last I checked. http://www.wolframalpha.com/input/?i=%28china+debt+%2F+china+gdp%29+vs+%28japan+debt+%2F+japan+gdp%29 http://www.wolframalpha.com/input/?i=%28china+debt+%2F+china...
- hackuser 11y agoThis seems like a big stretch. Because there are a few similarities, we can predict 10-20 years of economic performance? As far as I know, even the most sophisticted governments, econoimsts, investors, and businesses haven't cracked the code on predicting future economic performance. I also disagree on the similarities. They are/were very different countries. Japan was an advanced economy, with an advanced stock market, banking system, as well as a democratic government; China is a developing economy, with an immature banking system and market, and is run by a corrupt authoritarian dictatorship (is there any other kind?). The stock market is small relative to its economy[1]. Crucially, China's government's legitimacy comes mainly from economic performance -- that's their justification for ruling the country, nobody elected them. If it loses legitimacy and the people want a new government, there is no mechanism to replace it (such as the elections in democratic countries), creating a risk of political upheaval in the largest country and one of the largest economies in the world. [1] http://www.economist.com/blogs/freeexchange/2015/07/chinas-stockmarket-crash http://www.economist.com/blogs/freeexchange/2015/07/chinas-s...
- digi_owl 11y agoI Dunno. http://www.debtdeflation.com/blogs/minsky/ http://www.debtdeflation.com/blogs/minsky/