(FT Alphaville) Is China turning Japanese?

[According to Barclays’ economists…] The economic circumstances facing China have parallels with Japan’s experience after its asset bubble burst in the early 1990s. This created the term ‘Japanification’, which is typically defined as a combination of slow growth, low inflation, and a low policy rate, accompanied by deteriorating demographic trends.

To measure this phenomena, a Japanese economist, Takatoshi Ito, introduced a Japanification Index, which measured the sum of the inflation rate, nominal policy rate, and GDP gap. To apply to China’s economy, we have adjusted this index, replacing the GDP gap with working-age population growth, as the estimation methods of GDP gaps differ across nations and working-age population is by far the most fundamental determinant for long-term growth. Our amended index shows that China’s economy has become more ‘Japanised’ than Japan’s recently, albeit marginally.

This not a surprise to us. A demographic drag, the emergence and collapse of asset bubbles, debt overhang, zombie companies, deflationary pressures from excess capacity/high debt, and high youth unemployment, to name a few, are some of the notable similarities between the economies of China and Japan post their bubbles.

Read it all.

"The “Japanification” of China continues to be a big theme, with a lot of eerie parallels right down to stimulus proving wanting. Here’s the latest symptom" https://t.co/tlxjGqqgnd pic.twitter.com/TnKwearGl0

— Scott Lincicome (@scottlincicome) October 17, 2024