China’s Worrisome “Japanification” Part I: From Growth to Stagnation
The world catches a cold when China sneezes.
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China’s dictator Xi may not like to admit it. Still, under his ideologically driven governance, China is becoming more like Japan—not the Japan of 2023, but the Japan of two different periods in recent history. The Chinese economy has shown signs of stagnation, much like what happened to the Japanese economy in the early 1990s. Meanwhile, Xi’s nationalist rhetoric and militant foreign policies often remind people of the nationalistic Japan before and during WWII. If history offers us any guidance, China’s Japanification spells trouble for peace and prosperity for the rest of the world in the foreseeable future.
After WWII, Japan focused on rebuilding its manufacturing sector and became an export-oriented economy. The Japanese economy grew twice as fast as the U.S. and Western Europe’s for the next two decades. By 1968, Japan, once an impoverished, war-torn nation, had become the second-largest free-market economy in the world. Economic growth instilled confidence, and Japanese businessmen and large conglomerates, flush with cash, kicked off the 1980s with shopping sprees in the U.S., buying almost everything from American companies to Hollywood studios and landmark buildings.
Many Americans, and probably many Japanese too, believed that it was inevitable that the Japanese economy would surpass the U.S. economy soon. Americans were so nervous about Japan’s insatiable “buy America” appetite that columnist Paul Harvey warned fellow Americans of “an economic Pearl Harbor.”
Then the so-called “Japan Miracle” bubble burst in the early 1990s. The Japanese stock price index began to drop, followed by the decline of other assets, such as land. The 90s were often referred to as Japan’s “Lost Decade.” Unfortunately, the economic stagnation that began in the 1990s continued into the 2000s. Economists point to Japan’s aging population, low birthrate, and government and conglomerate debt burden as leading factors contributing to the nation’s extended economic stagnation. Americans stopped worrying about their economy being overshadowed by Japan.
The Chinese economy follows a similar trajectory as the Japanese economy. When the Chinese Communist Party’s leader Deng Xiaoping was ready to launch economic reform in 1979, China’s GDP per capita was only $184, less than India’s $267. Deng and his colleagues welcomed foreign investments and focused on manufacturing and exporting, giving entrepreneurs and management at state enterprises a bit of breathing room. The Chinese economy experienced double-digit growth for nearly three decades, and the nation became known as the "factory of the world” because of Chinese companies’ dominance in global manufacturing. China’s stock market index soared, and the real estate market became so red hot that about 70% of Chinese household wealth was in property.
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