After two decades of rapid expansion, China’s economy has seized up. Real growth has slowed dramatically, as reported by the World Bank and by the Rhodium Group (as opposed to Beijing’s official numbers, which are widely discounted). In current dollars, growth seems to have been negative from 2021-2023.
This expall made comparisons with the heartbreaking economic deceleration in Japan that began in the 1990s with the cave of the Japanese genuine real estate market, and led to a stagnation of several decades. The genuine gross domestic product of Japan consisting with captita, which had a higher rate of more than 5% consisting with the year from 1960 to 1990, was reduced to 0. 9% consistently with the year from 1990 to 2007, and increased even more consistent with resting.
The most striking sign of this economic malaise is persistent ultra-low inflation, making a genuine deflationary shift in thirteen of the next 28 years.
Japanese inflation: Japanification deflation trend
What has become known as Japanification includes a basket full of socioeconomic deplorables.
This ugly constellation of interlocking challenges proved highly resistant to the government’s stimulus measures. Investors more or less gave up on any recovery. The Japanese stock market did not return to its 1989 peak for nearly 35 years.
Japanese stock market 1989-2024
The Japanese genuine real estate market recovered.
Japanese Housing Index 1991-2024
Japan a tragedy for Japan, derailing the Japanese miracle of postwar growth. From 1960 to 1990, the highest Japanese economy 3 times faster than the US economy (although from a much smaller base).
Japan vs. United States 1960-1990
With the start of the Japanese race, Japan was left behind. From 1991 to 2019, the Japanese economy grew through a quarter of the rate of the U. S. economy.
Japan vs. USA 1991-2019
In short, Japan fell in the economical and fast way and never recovered. The effects of the Japanese feel to date.
There is a growing pessimism among China-watchers in the West (and apparently among many inside China) that China may be slipping into a similar scenario.
Chinese financial markets are flashing danger signs. The stock market is down 25% in the last four years. The government has pushed questionable countermeasures, ordering banks and insurance companies to buy shares to try to prop up the stock markets. It has not worked.
United States vs China – Bours commission
Chinese heritage values are falling quickly.
Chinese Housing Index
Beijing relies on Chinese state-owned banks to the genuine real estate market through the purchase of unsold homes. It also has no paintings.
Decreases in asset costs in China adhere almost perfectly with the Japanese delight (96%correlation).
Japan vs China – Real Estate Prices
Chinese interest rates have fallen. Bond yields have fallen to an all-time low, bond costs are soaring – a vast flight to protection is underway.
Chinese bond performance
Investors are running away from “risk” in the Chinese markets. The authorities there are clearly worried about the Japanification analogy, and “have told analysts and economists working at banks to avoid… comparisons with Japan’s stagnation.”
Other similarities to the Japanese delight in abundance. Youth unemployment in China has skyrocketed. Fertility has fallen. Deflation established. Producer costs have declined for 27 consecutive months.
China’s PPI is negative
The case of the Japanese situation is strong. But China faces the problem, which can be more serious than the Japanese analogy indicates.
In Japan in the 1990’s, stocks prices fell and bond prices soared. But something else happened there, which isn’t happening in China.
As Japanese inflation fell and turned into outright deflation, the value of the Yen almost doubled. In 1990, the Yen traded at around ¥160 to the dollar. Five years later, the Yen reached ¥84 to $1. The correlation of deflation with the strengthening of the Yen from 1990 to 1995 was 87%.
While Japanese inflation decreased, Yen has strengthened, 1990-1995
For more than five decades (1971-2024), this dating has resisted. Inflation has led to devaluation. Deflation, on the other hand, has higher than the yen.
In the beyond 4 years (2020-2024), while Japanese inflation has despite everything higher significantly, and the correlation with the drop in the price of YEN reached 91%, that is, the recent inflation Japanese is almost perfectly correlated with the devaluation of money.
Yen inflation correlates with devaluation 2020-2024
This makes sense. Inflation reduces the purchasing power of the currency. If a $ or ¥ buys less than before, its value should logically decline.
Deflation has the opposite effect, expanding the cost of money. A deflanting currency buys more today than yesterday. If the value of a dozen eggs was $ four yesterday, and today it costs $ 3, each dollar is “more” in the market.
Thus, normally, deflation and devaluation are opposing forces. In fact, currency devaluation has been used as a deliberate policy to counteract deflation.
In the United States, in the 1930s, in the depths of the Great Depression, Franklin Roosevelt intentionally, unilaterally, and audaciously devalued the U.S. dollar by raising price of gold by 70% over a very short period.
This questionable policy has been subjected to many complaints and many demanding situations, and has only been largely maintained through the Supreme Court. It is also very effective.
The devaluation of the dollar has been immediate and substantial. In seven months, the dollar fell by 40% in the exchange markets.
1933 – The Devaluation of the Dollar
It is an economic surprise and a fear. The dollar had a constant cost in terms of gold, $ 20. 76 according to the ounce, for more than 50 years. The FDR has damaged the connection almost overnight, expanding the gold value to $ 35 per ounce. Its ad hoc technique and almost capricious.
In total, it is a devaluation of the dollar larger than all the formal devaluations of the Chinese currency in recent decades.
Comparison of Chinese and American devaluations
It worked. The deflation stopped and the costs of raw fabrics began to accumulate almost immediately. The “animal spirits” of the global company have revived, the economy began to recover. The American GDP building updated 43% in the next 4 years. Unemployment buildings of 25% 14%.
FDR devaluation price
FDR’s gold program is often overlooked as a factor that helped lift the country out of the Depression. The academic consensus today is that “Roosevelt’s reflation accelerated America’s recovery.”
This harvest reversed the concept that the competitive devaluations of the wonderful economic powers in the 1930s were harmful.
Logically and empirically, deflation and devaluation move in the opposite direction. It is expected that the devaluation of the currencies, either imposed through the market or as a planned financial policy, be inflationary. A deflationary trend is probably probable that leads to the appreciation of the currency. It was transparent in the United States in the 1930s and has been transparent in Japan for more than 3 decades.
So what does this have to do with the Japanification of China?
Obviously, China is rooted in a deflationary state. The value of inflation is close to 0 and the value of the manufacturer has in depth.
But the Chinese currency is not appreciating, as it should, as the Japanese example would predict it. Instead of the head, Yuan is wasting value. Now it is decreasing what has been for at least 15 years.
De devaluation of Yuan 2015-2025
Since December 2021, as inflation has decreased, Yuan has also decreased. The fall in the Chinese production value index correlates with 89% with the loss of Yuan.
China suffers from deflation and devaluation at the same time. This is a vital difference in Japan’s experience.
What does that mean? I’m not sure, but I don’t think it can be good.
Indicates a construction of instability in the economic scenario of China.
The dynamics of any economy can be considered as a war between forces that have a tendency to create a balance and forces that have a tendency to lead to imbalance. The coexistence of deflation and devaluation in China today resembles an imbalance force.
This hamstrings Chinese monetary policy, in two ways. First, any fiscal or monetary stimulus to designed to fight deflation runs the risk of further weakening the currency, which could exacerbate capital flight, suppress foreign investment, and threaten the stability of the financial system (as described in the previous column). Second, it eliminates the option of using the “Roosevelt maneuver.” Beijing cannot fight deflation with devaluation.
The patience of deflation alters the functioning of credit markets, which ends up suffocating the rescue buoy for Chinese corporations that have too much.
It is difficult to see an exit from this trap. This “toxic combination” of deflation and devaluation represents an escalation of the stagnation situation that Japan did not face. Point out a superior threat point for China. The Japanese economy fought with stagnation, however, it was never on the verge of turning to economic or political disorder. Japan could be confused without falling apart, and the strength of his currency was a reflected image of his basic stability. The weakness in China’s currency, even when deflation is strengthened, it is a sinister sign of socioeconomic fragility that would possibly go beyond the “standard” Japanese situation.
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