2/13
One economist argues that China is much poorer than the US, and so βgiven the room for catch-up is still there, Chinaβs still going to maintain 4% to 5% growth in the next five to 10 years.β
One economist argues that China is much poorer than the US, and so βgiven the room for catch-up is still there, Chinaβs still going to maintain 4% to 5% growth in the next five to 10 years.β
3/13
I find this argument strange because it seems to assume convergence is a law of economics. In fact convergence almost never occurs, and in the few times it nearly has, it has involved very specific circumstances that simply don't apply to most developing countries.
I find this argument strange because it seems to assume convergence is a law of economics. In fact convergence almost never occurs, and in the few times it nearly has, it has involved very specific circumstances that simply don't apply to most developing countries.
4/13
It's not that the convergence argument is new. It has been proposed every single time we have had an investment-driven growth miracle, and has always been used to explain why the miracle cannot end any time soon. And yet it is always followed by a long period of divergence.
It's not that the convergence argument is new. It has been proposed every single time we have had an investment-driven growth miracle, and has always been used to explain why the miracle cannot end any time soon. And yet it is always followed by a long period of divergence.
5/13
A second analyst says China does not face a Japanese-style period of stagnation because "China has, among other things, kept control of its currency, while Japanβs yen has fluctuated too quickly."
A second analyst says China does not face a Japanese-style period of stagnation because "China has, among other things, kept control of its currency, while Japanβs yen has fluctuated too quickly."
6/13
This simply isn't true. I suppose what he means is the Plaza Accord. Many Chinese economists believe, bizarrely enough, that Japanese growth entered into a 3-decade collapse beginning in the early 1990s because of the 1985 Plaza Accord.
This simply isn't true. I suppose what he means is the Plaza Accord. Many Chinese economists believe, bizarrely enough, that Japanese growth entered into a 3-decade collapse beginning in the early 1990s because of the 1985 Plaza Accord.
7/13
In fact the Plaza Accord affected many countries, Japan and Germany most of all, but none except Japan had the subsequent experience. Even the Japanese no longer think the Plaza Accord had anything to do with their long stagnation.
In fact the Plaza Accord affected many countries, Japan and Germany most of all, but none except Japan had the subsequent experience. Even the Japanese no longer think the Plaza Accord had anything to do with their long stagnation.
8/13
The same analyst points to "Chinaβs investment and self-reliance in tech innovation" as another reason China cannot share Japan's fate. The idea that China is somehow more technologically advanced today than Japan was in the 1980s suggests a deep unfamiliarity with Japan.
The same analyst points to "Chinaβs investment and self-reliance in tech innovation" as another reason China cannot share Japan's fate. The idea that China is somehow more technologically advanced today than Japan was in the 1980s suggests a deep unfamiliarity with Japan.
9/13
The reason for comparing China today with Japan then is that they both had, among other things, serious income imbalances, years of non-productive investment, heavily administered banks underpinned by government guarantees, vastly overvalued real restate, and soaring debt.
The reason for comparing China today with Japan then is that they both had, among other things, serious income imbalances, years of non-productive investment, heavily administered banks underpinned by government guarantees, vastly overvalued real restate, and soaring debt.
10/13
These were what led to Japan's bubble as well as its difficult adjustment after a forty-year investment-driven growth miracle. These were also the same conditions in every other country that followed a similar growth path, and they all had brutally difficult adjustments.
These were what led to Japan's bubble as well as its difficult adjustment after a forty-year investment-driven growth miracle. These were also the same conditions in every other country that followed a similar growth path, and they all had brutally difficult adjustments.
11/13
China differs from Japan meaningfully only in that it is larger, poorer, and all of the imbalances are much worse in China than they were in Japan. In fact in China the income imbalance, which is the heart of the problem, is far worse than anything we've ever seen before.
China differs from Japan meaningfully only in that it is larger, poorer, and all of the imbalances are much worse in China than they were in Japan. In fact in China the income imbalance, which is the heart of the problem, is far worse than anything we've ever seen before.
12/13
Most analysts covering China don't know this, however, because they know very little about the history of this growth model and the difficulties it has presented. Ironically, even in that they resemble the analysts covering Japan in the 1980s.
Most analysts covering China don't know this, however, because they know very little about the history of this growth model and the difficulties it has presented. Ironically, even in that they resemble the analysts covering Japan in the 1980s.
13/13
If Beijing wants to avoid Japan's fate, it must understand what actually caused it and why it is so difficult to rebalance income, and it must take specific steps Tokyo didn't or couldn't. Otherwise pretending it can't happen in China almost guarantees that it will.
If Beijing wants to avoid Japan's fate, it must understand what actually caused it and why it is so difficult to rebalance income, and it must take specific steps Tokyo didn't or couldn't. Otherwise pretending it can't happen in China almost guarantees that it will.
There are a lot of good books I found helpful in understanding Japan, including this one:
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