Could China Avoid Slower Economic Growth?

China’s economic recovery is facing several challenges, including an ageing workforce, weak consumer demand, and a property market downturn. Analysts are drawing parallels with Japan, which experienced a slowdown after its asset-price bubble burst in 1989.

Japan’s relaxed monetary policy in the 1980s triggered an economic bubble that eventually burst and sank the economy into a recession that lasted almost 25 years. The International Monetary Fund estimated that Japan’s public debt to gross domestic product ratio would continue to rise, reaching 258.2% in 2023, the highest in all advanced economies.

Both countries have pursued the same economic model, relying on high savings and investment, and pushing for supply side measures to bolster exports. However, China’s credit boom was largely extended to state-owned or controlled companies, including local governments, which have raised concerns about a looming local government debt crisis in China.

The key lesson for China is not to repeat the same mistakes made by Japanese policymakers in the 1990s. China’s youth unemployment rate has hit a new high as recovery falters, and the Bank of Japan was slow to make interest rate cuts.