China is teetering on the edge of a prolonged economic slowdown, a troubling trend often referred to as “Japanification,” echoing Japan’s lost decades of stagnation in the 1990s. China’s post-pandemic recovery has been shaky, sparking concerns that the world’s second-largest economy may be stepping into a decade of stagnation.
Several troubling indicators are drawing direct comparisons to Japan’s economic slump. China now faces a double blow of high debt levels and a weak demand within its domestic market, exacerbated by declining trade relations. Key economic metrics underscore these issues, with GDP growth remaining sluggish and inflation barely registering. The country’s beleaguered property market also adds strain, as housing prices decline and investment falters, dragging down the larger economy.
A pivotal factor contributing to China’s economic struggle is its shifting demographics. As of mid-2024, China’s population is estimated at 1.42 billion, with a worrisome twist: the growth rate has now turned negative for the second consecutive year. In 2023 alone, the population dropped by around 2.08 million, signaling a steep demographic decline that could curtail future economic dynamism and labor supply.
Experts warn that this demographic shift could severely impact China’s economic potential. Desmond Lachman, a former IMF official, has likened China’s current situation to Japan’s “lost decade,” cautioning that China may now face a similar stagnation. Without meaningful reforms, this trajectory could mean prolonged economic stagnation, affecting the global market.
In response, Chinese authorities are considering policies to stimulate short-term growth and implementing structural reforms to address the demographic transition. However, whether these interventions will effectively reverse the trend remains uncertain, leaving global observers questioning if China can avoid the pitfalls of Japan’s economic history.
Japanification in full swing.
China's lost decade has begun. t.co/GiGOGlEqRr
— The Great Martis (@great_martis) October 28, 2024
🇨🇳 China industrial profits -27.1% YoY.
𝗟𝗼𝘄𝗲𝘀𝘁 𝘀𝗶𝗻𝗰𝗲 𝗖𝗢𝗩𝗜𝗗!
Chart: @economics pic.twitter.com/IC5YfMh2Td
— Alex Joosten (@joosteninvestor) October 27, 2024
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