A sluggish and faltering recovery has renewed speculation on whether China is facing the prospect of “Japanification,” a persistent period — decades perhaps — of low and slow growth.
This discussion isn’t new: In 2016, economists pointed to real estate and stock market bubbles, rising debt, heightened default risks and endless credit for zombie companies to make that case. While there are reasons to anticipate that China can avoid the worst of Japan’s woes, a political and ideological straitjacket may pose an insuperable obstacle.
China’s recovery from the COVID-19-induced slowdown has been fitful. The economy grew less than 1% in the second quarter of this year compared with the previous three months, and investment from the private sector, which accounts for 60% of gross domestic product and 80% of urban employment in China, contracted year on year in the second quarter. Long-term growth projections are significantly lower than those of the past, prompting economists to wonder if the Japan analogy now fits.