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Is China’s economy following in the footsteps of Japan?
Anne Vandenabeele

Concerns about China’s growth slowdown have led to growing comparisons with 1980s Japan and the circumstances that led to the latter’s stagnation over recent decades.

While China's long-term growth picture and imbalances may not ultimately be as severe, weakness in confidence and investment, plus currently limited stimulus potential, could create the same overcapacity and downshift in expectations.

Analysis so far has highlighted more obvious similarities between the two, including demographic headwinds and a property crisis, but spent less time on factors including investment, productivity, stimulus and expectations. We believe these are equally (if not more) relevant for China today.

Japan: Real potential growth, %

Japan Real potential growth

Source: LSEG Datastream, Capital Group, International Monetary Fund (IMF)

China real GDP growth: annual and trend, y/y

China Real potential growth

Source: Capital Strategy Research, CEIC, National Bureau of Statistics of China

Among the key questions in global macroeconomic circles at present is whether China is already on the same path and what the country could do avoid this fate. ‘Japanification’ has become a well-used term in this debate, broadly referring to a protracted period of deflation, economic sluggishness, property market declines and financial market stress, as households, companies and governments try to reduce excess leverage.

Anne Vandenabeele covers economic developments in the U.S. and Japan as an economist at Capital Group. She has 23 years of investment experience (as of 12/31/2023) and  holds a master’s degree with honors in economics from the University of Edinburgh and a master of philosophy in economics from the University of Oxford.

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