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SHANGHAI/BEIJING -- China's economy is showing signs of falling into a similar slump as Japan after the end of its asset-price bubble, with uncertainty sapping business and consumer appetite for spending as population decline sets in.
Even after the government ended its zero-COVID policy for containing the virus, the economy is still struggling to get back on track.
"Customers have tightened their purse strings since the end of the Labor Day holiday in May," said a restaurant owner in Beijing. Spending per customer has slid from around 400 yuan in the spring to below 300 yuan, or from about $56 to under $42.
The pattern of weak demand leading to anemic inflation bears similarities to Japan's decades of stagnation since 1990.
"China is showing evidence of the 'Japan disease,'" said Yin Jianfeng, deputy director-general of the National Institution for Finance and Development, a state-affiliated think tank.
Growth in China's core consumer price index inflation, which excludes food and energy, slowed to 0.4% on the year in June. Inflation trends over the past several years look very much like Japan's in the 1990s.
Chinese authorities have dismissed the risk of deflation. But Yin said China is in a deflationary state now, based on the CPI's tendency to read higher than actual inflation.
Chinese people are voicing concern about the direction of the economy. "Anxiety about the future has become ingrained in a lot of people," said a restaurant employee who went through the Shanghai lockdown in spring 2022.
Consumers are reluctant to make big purchases like homes and durable goods. Young people have tightened their belts even more with youth unemployment exceeding 20%.
Money is sitting idle in banks, much like in post-bubble Japan. Deposits in China outpaced loans by 48 trillion yuan ($6.7 trillion) at the end of June -- the second-highest gap on record, behind only this past March. In Japan, a strong preference for saving over spending created a liquidity trap that made monetary policy less effective at stimulating the economy.
China's rapid fall in birthrates also resembles "Japanification." Some estimates forecast fewer than 8 million births this year, half the total five years ago. An unchecked decline would ultimately lead to a serious labor shortage and a shrinking consumer market.
While the population was growing, the country was able to use capital formation -- building assets such as real estate and railroads -- as an economic engine. But with infrastructure having reached a certain degree of development, especially in cities, its effectiveness in boosting growth is waning.
Yin's research team found that China's investment efficiency in 2010 was double Japan's and 20% higher than the U.S., but it fell below the U.S. in the early 2010s and Japan in 2019.
Even as the government's big-spending policies bring diminishing returns, the transition from an investment-led to a consumption-driven economy sought by Beijing has been slow going.
The International Monetary Fund forecasts China's growth coming in at 4.5% next year and the 3% range in 2026.
Chinese policymakers have studied post-bubble Japan heavily. "They've focused on avoiding excessive bubble-bursting and on maintaining economic and financial stability," said Yasunari Ueno, chief market economist at Mizuho Securities.
"But the cost of not learning lessons from Japan on the population issue is significant," Ueno added.
asia.nikkei.com
Even after the government ended its zero-COVID policy for containing the virus, the economy is still struggling to get back on track.
"Customers have tightened their purse strings since the end of the Labor Day holiday in May," said a restaurant owner in Beijing. Spending per customer has slid from around 400 yuan in the spring to below 300 yuan, or from about $56 to under $42.
The pattern of weak demand leading to anemic inflation bears similarities to Japan's decades of stagnation since 1990.
"China is showing evidence of the 'Japan disease,'" said Yin Jianfeng, deputy director-general of the National Institution for Finance and Development, a state-affiliated think tank.
Growth in China's core consumer price index inflation, which excludes food and energy, slowed to 0.4% on the year in June. Inflation trends over the past several years look very much like Japan's in the 1990s.
Chinese authorities have dismissed the risk of deflation. But Yin said China is in a deflationary state now, based on the CPI's tendency to read higher than actual inflation.
Chinese people are voicing concern about the direction of the economy. "Anxiety about the future has become ingrained in a lot of people," said a restaurant employee who went through the Shanghai lockdown in spring 2022.
Consumers are reluctant to make big purchases like homes and durable goods. Young people have tightened their belts even more with youth unemployment exceeding 20%.
Money is sitting idle in banks, much like in post-bubble Japan. Deposits in China outpaced loans by 48 trillion yuan ($6.7 trillion) at the end of June -- the second-highest gap on record, behind only this past March. In Japan, a strong preference for saving over spending created a liquidity trap that made monetary policy less effective at stimulating the economy.
China's rapid fall in birthrates also resembles "Japanification." Some estimates forecast fewer than 8 million births this year, half the total five years ago. An unchecked decline would ultimately lead to a serious labor shortage and a shrinking consumer market.
While the population was growing, the country was able to use capital formation -- building assets such as real estate and railroads -- as an economic engine. But with infrastructure having reached a certain degree of development, especially in cities, its effectiveness in boosting growth is waning.
Yin's research team found that China's investment efficiency in 2010 was double Japan's and 20% higher than the U.S., but it fell below the U.S. in the early 2010s and Japan in 2019.
Even as the government's big-spending policies bring diminishing returns, the transition from an investment-led to a consumption-driven economy sought by Beijing has been slow going.
The International Monetary Fund forecasts China's growth coming in at 4.5% next year and the 3% range in 2026.
Chinese policymakers have studied post-bubble Japan heavily. "They've focused on avoiding excessive bubble-bursting and on maintaining economic and financial stability," said Yasunari Ueno, chief market economist at Mizuho Securities.
"But the cost of not learning lessons from Japan on the population issue is significant," Ueno added.
China's economic slowdown raises 'Japanification' fears
Weak inflation, aging population and excess savings echo post-bubble Japan
asia.nikkei.com
