China may never be susceptible to 'Japanification' because it has built a capacity on land and on the sea to generate infrastructure that will sustain it
There is some compelling argument, that China may be on track for a new wave of 'Japanification', a term being used by economists around the world to compare China's present-day economic condition with that of Japan in the 1990s. some similarities are striking for eg Beijing’s property market two years ago was as bubbly as Tokyo’s property market two decades ago, however within a few months in the late 1990s Japan lost 60% of its property value. China has lost 50% of its property value in the last two years, so is it a detonation of a time bomb set ticking by a property bubble in the case of China too?
The 1990s had pitched Japan off a trajectory on which it once seemed capable of overtaking the US. China too looked like overtaking the US three years ago and now looks off track with a sluggish growth outlook.
Both countries entered extended phases of strong GDP growth via investment in infrastructure and the encouragement of exports. Between 2010 and 2020, there was 43 per cent of Chinese GDP growth and when the Japanese bubble burst in 1990, the capital formation proportion was at roughly 36 per cent.
Japan and China also similarly financed their growth. Not only are there similarities between demography and the property bubble there is also a parallel between the two nations concerning their relationships with the US. As Japan’s trade surplus grew, competitive friction with America escalated to an outright trade war in the 1990s. In the same way now certain sections of the West are talking about decoupling from China because of its expansionist policies. These similarities may not be exact equivalents, but many economists feel the effect could be.
An overall analysis of the situation however shows that most economists may be wrong. China is not like Japan politically, culturally or even geographically. While Japan has been always dependent on the US for its defence, China has the ambition to make its military might formidable, even strong enough to counter NATO. China has been trying to find ways to fuel growth much beyond its borders in the form of the 'One Belt One Road Project', spreading across more than 70 countries, something Japan never tried to do.
Why China may never be susceptible to 'Japanification' is a fact that it has built a capacity on land and on the sea to generate infrastructure demand at will. It's an effort to make ports and create artificial islands pointing in that direction.
The other reason is that China has developed its research and technology infrastructure alongside its manufacturing sector, which gives it an edge in innovation which is a currency of the future. China's economy is diversified and apart from manufacturing a lot of investment has been done in research and innovation. It has made itself very strong in the Semiconductor industry and the bulk of its sectors are technology driven. China has also been supplying liquidity through various channels like cyber extortion and this corrupt underbelly may also help fight deflation.
The geographical area of influence of China is quite large and it spreads across all continents which acts as a deterrent towards any drastic fall in the economic growth. China's expansionist tendencies are also likely to aid them economically. One of the major reasons why China wants complete control over Taiwan is economic.
Quoting from the Chinese white paper, "Taiwan boasts a high level of economic growth and robust foreign trade. Its economy is highly complementary with that of the mainland." These lines establish the intent of China to mix its geo-political ambitions with economic dividends.
In a nutshell, China is not dependent on the West for its growth to sustain where Japan was. China has in the last two decades made several economies partially or dependent on itself. Major economies of Europe including Germany are dependent on China for critical raw materials, which are needed for the transition to cleaner energy and transport.
Australia too is largely dependent on China for its sustenance, with twenty-five per cent of its manufactured imports coming from it.
In Asia, countries like Pakistan and Iran are dependent on China for their survival and are a major market for Chinese goods. Hence, no matter what most economists may say, 'Japanification' of the People's Republic of China is a far cry and their analysis looks far from reality.
(The writer is expert on geopolitics and international Affairs. The views expressed are personal)