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2023-08-19 10:20:25
Discover the Game-Changing Power Behind Volkswagen's ID.4 ProChina’s Japanification: A Protracted Period of Economic Sluggishness and Deflationary Pressures
The biggest question in global macroeconomics at the moment is whether China is on the cusp of a “balance sheet recession”. This term, first coined by Nomura’s Richard Koo, describes Japan’s lost decade(s) but is better known as “Japanification”. It refers to a prolonged period of deflation, economic sluggishness, property market declines, and financial stress as attempts to deleverage after a debt binge prove unsuccessful.
Unveiling a Groundbreaking Week in Farming: Unraveling TB mysteries, profound combine revelations, and unexpected arrestsJPMorgan analysts recently published a report drawing parallels between China today and Japan in the 1990s, noting some similarities while also emphasizing differences. While China faces certain challenges that might make its situation worse than Japan's, there are also several factors that could potentially mitigate the impact.
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Rising Sun, a 1990s film based on a book by Michael Crighton, showcased America's anxiety over Japan's rise. This anxiety is reminiscent of the current US concern over China's rise. JPMorgan's report highlights eerie similarities between China's housing market development and Japan's in the 1990s. Both countries faced financial imbalances and a rapidly aging population. Additionally, trade conflicts with the US contributed to economic challenges for both Japan and China.
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JPMorgan points out several differences that might help China evade the full-blown balance sheet recession experienced by Japan. These include a lower urbanization ratio, a larger domestic market, less severe housing price overvaluation, capital controls, and stronger control of the debt problem by the Chinese government. These factors provide China with potential avenues for economic growth and resilience.
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JPMorgan's main concern is that China is actually aging more rapidly than Japan did, which could result in a demographics-caused middle-income trap. However, the economists also note that the global economic backdrop is worse for China than it was for Japan in the 1990s. The report highlights that China has less room for fiscal and monetary policy stimulus compared to Japan.
What's the Diagnosis?
JPMorgan argues that China's current economic situation does not yet reflect a full-fledged balance sheet recession. They believe the Chinese government's strategy of protecting house prices while allowing volumes to correct dramatically is preventing a downward spiral. However, China's overall debt burden has been steadily increasing, which could pose challenges for future economic growth.
While it is clear that China's situation is not a carbon copy of Japan's, there are enough similarities to suggest that China's economy might experience a protracted period of declining demographics, economic sluggishness, deleveraging, and deflationary pressures. The future trajectory of China's economy remains uncertain as it navigates its own unique challenges.
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