Is China Repeating Japan's Missteps?

choi

Michael Schuman, Is China Repeating Japan’s Missteps?  Bloomberg BusinessWeek, Nov 7, 2016
http://www.bloomberg.com/news/ar ... ng-japan-s-missteps

Quote:

(a) "Perhaps more dangerously, China’s loose money has also pumped up a mammoth increase in debt—like Japan's in the 1980s. Ratings company Fitch shows that total debt relative to national output in Japan jumped almost 80 percentage points, to 275 percent from 1980 to 1989, on the eve of the country's financial meltdown. The same ratio in China has risen steeply—more than 100 percentage points from 2007 to 2015, reaching 255 percent of its gross domestic product, according to the Bank for International Settlements.

There are economists who argue that China's mountain of debt isn’t as risky as it appears. Since the debt consists to a great degree of loans made by state banks to state enterprises, the government is likely to step in and support the financial system. And because Chinese debt is almost entirely domestic and backed by massive savings, the financial sector is unlikely to fall prey to outside shocks.

"The experience of Japan suggests otherwise. It, too, was a creditor nation with large trade surpluses and ample savings in the early 1990s, but that didn't prevent a financial crisis. If anything, Japan is proof that a bubble-prone, debt-obsessed economy is susceptible to failure, no matter the circumstances.

(b) "To sustain growth, the [Japan's] government turned to artificial stimulus—deficit-financed spending on infrastructure and unprecedented printing of yen by the central bank. That managed to swell Japan’s total debt to almost four times its national output at the end of 2015 while failing to revive the economy. The meddlesome bureaucracy has [to this day] never reduced regulation nor opened markets enough to spur competition, efficiency, and entrepreneurship.

(c) "China and Japan also share one long-term trend that hampers their economies—aging. Japan's working-age population decreased 0.4 percent per year from 1990 to 2015.  * * * the Chinese population is set to age even more quickly, with the workforce expected to shrink nearly 0.5 percent annually over the next 25 years, according to Goldman Sachs.

(d) "Beijing and Tokyo have suffered from the same fatal flaw: a deep-seated unwillingness to alter a growth model that no longer delivers results.

Note
(a) "And since the state in China's 'state capitalism' plays an even larger economic role than Japan's officious bureaucracy does, the Chinese government interferes with markets to a greater degree."

officious (adj; Did You Know?)
http://www.merriam-webster.com/dictionary/officious
(b) "Schuman is a Beijing-based journalist and author of Confucius: And the World He Created [Basic Books, 2015]."