The Times Australia
The Times World News

.

In China, Albanese might find an economy as uncertain as Japan's 30 years ago

  • Written by Tim Harcourt, Industry Professor and Chief Economist, University of Technology Sydney
In China, Albanese might find an economy as uncertain as Japan's 30 years ago

When Prime Minister Anthony Albanese visits China[1] later this year he will encounter a nation whose future is about as uncertain as it was 50 years ago when Gough Whitlam became the first[2] Australian prime minister to visit in late 1973.

Then China was poor, in the process of reengaging the rest of the world after the death of Communist Party Chairman Mao Zedong. Today it is, on one measure, the second-biggest[3] economy in the world, one of the top five along with the United States, Japan, Germany and the United Kingdom.

Along the way, it has become by far the biggest customer for Australian exports, accounting for 30%[4] of everything Australia sells, and Australia’s biggest source of imports, providing 27% of all the goods and services that come into the country.

But like Japan before it (which was Australia’s biggest customer before the rise of China) its economy is at a crossroads.

The similarities between China today and Japan in late 1991 are eerie.

Japan’s phenomenal economic growth had been fuelled by a blend of government investment, cheap labour and export-led growth, alongside something else not given enough credit at the time – continually climbing real estate prices.

When those prices collapsed amid mountains of debt, Japan was thrown into what became known as its lost decade[5]. This was a decade in which the economy barely grew, notwithstanding ultra-low interest rates, rolling into a second lost decade[6] in which the economy barely grew, even though interest rates had turned negative[7].

Eerie similarities

Some of the similarities between China today and Japan in the early 1990s are too uncanny to ignore.

Corporate debt: China’s rapid growth was accompanied by a surge in debt, both in the corporate sector and among local governments.

Just as Japan struggled with unproductive “zombie companies[8]” during its crisis, China faces a similar challenge with state-owned enterprises that for the moment[9] continue to operate despite heavy debt burdens, relying on government support.

Unstable financial institutions: China’s banking sector, like Japan’s in the 1990s, is heavily exposed to non-performing loans. Some of Japan’s banks survived only because of taxpayer funded bailouts[10].

Decelerating economic growth: from the 1990s to 2010 Chinese annual economic growth was rarely below 10%. It has spent much of the time since COVID below 5%[11], raising the prospect of falls toward zero - as experienced by Japan from time to time throughout its lost decades.

Ageing, shrinking populations: both China’s and Japan’s populations are turning down[12], in China’s case because of limited immigration and the aftermath of the one-child policy[13], and in Japan’s case because of limited immigration and a decline in the birthrate to well below replacement level[14].

In Japan[15], the proportion of the population aged 65 and above has climbed from 8% to 30% since 1980. In China[16], the proportion has climbed from 4% to 14%.

In both cases the increasing proportion of aged citizens means a greater stock of savings to be invested, but in both cases much is invested aboard where the returns are often better.

Different this time? Maybe

China can learn a lot from Japan’s painful experiences, but putting the lessons into practice won’t be easy.

Just as cross-shareholdings ensured Japan’s bad loans permeated the economy for much longer than they should have, China’s system of enmeshed government and private entities threatens to do the same thing.

The world is watching as China navigates these challenges. It has seen what happened elsewhere.

Richard Gruppetta, a former diplomat and trade commissioner to Tokyo, assisted with the preparation of this piece.

References

  1. ^ visits China (theconversation.com)
  2. ^ first (www.smh.com.au)
  3. ^ second-biggest (www.investopedia.com)
  4. ^ 30% (www.dfat.gov.au)
  5. ^ lost decade (www.investopedia.com)
  6. ^ second lost decade (www.rieti.go.jp)
  7. ^ turned negative (www.investopedia.com)
  8. ^ zombie companies (www.afr.com)
  9. ^ for the moment (www.piie.com)
  10. ^ taxpayer funded bailouts (internationalbanker.com)
  11. ^ below 5% (tradingeconomics.com)
  12. ^ down (theconversation.com)
  13. ^ one-child policy (www.scmp.com)
  14. ^ replacement level (www.weforum.org)
  15. ^ Japan (data.worldbank.org)
  16. ^ China (data.worldbank.org)

Read more https://theconversation.com/in-china-albanese-might-find-an-economy-as-uncertain-as-japans-30-years-ago-213539

Times Magazine

September Sunset Polo

International Polo Tour To Bridge Historic Sport, Life-Changing Philanthropy, and Breath-Taking Beauty On Saturday, September 6th, history will be made as the International Polo Tour (IPT), a sports leader headquartered here in South Florida...

5 Ways Microsoft Fabric Simplifies Your Data Analytics Workflow

In today's data-driven world, businesses are constantly seeking ways to streamline their data analytics processes. The sheer volume and complexity of data can be overwhelming, often leading to bottlenecks and inefficiencies. Enter the innovative da...

7 Questions to Ask Before You Sign IT Support Companies in Sydney

Choosing an IT partner can feel like buying an insurance policy you hope you never need. The right choice keeps your team productive, your data safe, and your budget predictable. The wrong choice shows up as slow tickets, surprise bills, and risky sh...

Choosing the Right Legal Aid Lawyer in Sutherland Shire: Key Considerations

Legal aid services play an essential role in ensuring access to justice for all. For people in the Sutherland Shire who may not have the financial means to pay for private legal assistance, legal aid ensures that everyone has access to representa...

Watercolor vs. Oil vs. Digital: Which Medium Fits Your Pet's Personality?

When it comes to immortalizing your pet’s unique personality in art, choosing the right medium is essential. Each artistic medium, whether watercolor, oil, or digital, has distinct qualities that can bring out the spirit of your furry friend in dif...

DIY Is In: How Aussie Parents Are Redefining Birthday Parties

When planning his daughter’s birthday, Rich opted for a DIY approach, inspired by her love for drawing maps and giving clues. Their weekend tradition of hiding treats at home sparked the idea, and with a pirate ship playground already chosen as t...

The Times Features

Do you really need a dental check-up and clean every 6 months?

Just over half of Australian adults[1] saw a dental practitioner in the past 12 months, most commonly for a check-up[2]. But have you been told you should get a check-up and c...

What is a Compounding Pharmacy and Why Do You Need One in Melbourne?

Ever picked up a prescription and thought, this pill is too big, too bitter, or full of things I cannot have? That is where a compounding chemist becomes important. A compounding p...

Deep Cleaning vs Regular Cleaning: Which One Do Perth Homes Really Need?

Whether you live in a coastal home in Cottesloe or a modern apartment in East Perth, keeping your living space clean isn’t just about aesthetics, it’s essential for your health and...

Rubber vs Concrete Wheel Stops: Which is Better for Your Car Park?

When it comes to setting up a car park in Perth, wheel stops are a small feature that make a big difference. From improving driver accuracy to preventing costly damage, the right c...

Not all processed foods are bad for you. Here’s what you can tell from reading the label

If you follow wellness content on social media or in the news, you’ve probably heard that processed food is not just unhealthy, but can cause serious harm. Eating a diet domin...

What happens if I eat too much protein?

The hype around protein[1] intake doesn’t seem to be going away. Social media is full of people urging you to eat more protein, including via supplements such as protein sha...