[PAGE_1]What do China and 1980s Japan have in common?[/PAGE_1]
[PAGE_2]Managing the growth trajectory in a centrally planned economy[/PAGE_2]
[PAGE_5]Modern-day China today, however, is not equivalent to 1980s Japan[/PAGE_5]
[PAGE_5]China has three things going against it, however.[/PAGE_5]
[PAGE_6]Lessons learned from Japan[/PAGE_6]
[PAGE_6]Three main lessons can be drawn from Japan in the past.[/PAGE_6]
[PAGE_8]Is Japanification a lesser evil when faced with harsher scenarios?[/PAGE_8]

Sophie WIEVIORKA

The three characteristics of 1980s Japan are the combination of low growth, low inflation and low interest rates, against a backdrop of trade tensions with the United States, a stronger yen  and an accelerated ageing of the population. Drawing a parallel with today's China is therefore far from absurd.
Above all, Japan's growth strategy stemmed from a development model based on exports and industrial upgrading (known as the "flying geese" model), high investment and savings rates, and financing led more by banks than by the markets. These characteristics are very similar to what we have seen in China, especially since the country joined the WTO in 2001. 

Sophie
 
WIEVIORKA
Economist

Real estate crisis, demographic problems, trade tensions with the United States, concerning debt levels: multiple comparisons can be drawn between China today and 1980s Japan, sparking fears of a "Japanification" scenario for the Chinese economy. Such a scenario is characterised by a slowdown in economic activity caused by a drop in private consumption, the advent of a negative, deflation-fuelling price-wage loop and a decline in potential growth.

  

And yet, Japan never really recovered from its "lost decade": the country, which economists in the 1980s saw as the world's leading economic power, ultimately experienced nearly two decades of stagnating growth and prices.

  

China is not 1980s Japan, which both gives it an edge and poses a problem. It gives it an edge because it has more leeway in conducting its economic policies. It raises a problem because its level of development and wealth – and therefore resilience – is much lower, exposing it to ultimately harsher scenarios.

  

That said, China could learn from Japan in order to avoid making the same mistakes, starting with the adoption of clear and transparent communication on policies implemented to re-anchor expectations and restore confidence.

  

While these parallels may be compelling, if any lessons can be drawn, the nature of China's regime and tightening of ranks around the party and its leader Xi Jinping mean that China will never completely resemble either 1980s or modern-day Japan. Furthermore, the country is still far from overcoming the obstacles in its path in order to revive its growth trajectory.