After two decades of immediate expansion, the Chinese economy has understood. The real expansion has slowed down considerably, as reported through the World Bank and through the Rhodium organization (unlike the official Beijing figures, which are updated largely). In existing dollars, the expansion turns out to have been negative compared to 2021-2023.
This stall-out has drawn comparisons with the wrenching economic slowdown in Japan that began in the 1990’s with the collapse of the Japanese real estate market, and led to decades-long stagnation. Japan’s real gross domestic product per capita, which had grown at a rate of more than 5% annually from 1960 until 1990, slowed to just 0.9% annually from 1990 to 2007, and sagged even further thereafter.
The most striking sign of this economic malaise was persistent ultra-low inflation, tipping into actual deflation in 13 out of the following 28 years.
Japanese inflation: Japanification deflation trend
What he has known as Japanese includes a complete basket 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 inventory market 1989-2024
The genuine Japanese real estate market has recovered.
Japanese housing index 1991-2024
Japan a tragedy for Japan, derailing the miracle of postwar growth of Japan. From 1960 to 1990, the Japanese economy grew 3 times faster than the US economy (although from a much smaller base).
Japan vs in the United States 1960-1990
With the onset of Japanification, Japan fell behind. From 1991 until 2019, the Japanese economy grew at only one-fourth the rate of the U.S. economy.
Japan vs in the United States 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 developing pessimism among China watchers in the West (and among many China at home) that China would possibly slide 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 Encarge
Chinese heritage values are falling rapidly.
Chinese Housing Index
Beijing is based on Chinese state banks to the genuine real estate market through the purchase of non -sold homes. Nor does it have paintings.
Discounts on the value of genuine property in China almost perfectly stick to the delighted Japanese (96% correlation).
Japan vs China – Asset Prices
Chinese interest rates have fallen. Bond yields have fallen to a historical minimum, bond costs are triggered: a vast flight to protection is being made.
Chinese Bond Yields
Investors flee from “risk” in Chinese markets. Obviously, the authorities are involved on the analogy of the Japanese and “said analysts and economists who are executed in Banks Toarray. Comparisons with the stagnation of Japan. “
Other similarities to the Japanese delight in abundance. Unemployment among other young people in China has skyrocketed. Fertility fell. Deflation sets in. Producers’ 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 may 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 became a direct deflation, the price of Yen almost doubled. In 1990, the Yen quoted in around ¥ 160 to the dollar. Five years later, Yen reached ¥ 84 to $ 1. the correlation of deflation with the strengthening of Yen from 1990 to 1995 87%.
As Japanese inflation declined, the yen strengthened, 1990-1995
More than five decades (1971-2024), this event was resisted. Inflation has led to devaluation. Deflation, on the other hand, higher than Yen.
In the beyond 4 years (2020-2024), while Japanese inflation has nevertheless significantly higher, and the correlation with the fall in the price of the yen reached 91%, i. e. , recent Japanese inflation is almost perfectly correlated with the devaluation of money.
Yen Inflation correlated with devaluation 2020-2024
That makes sense. Inflation reduces the purchasing power of money. If a $ or ¥ buys less than before, its price logically decreases.
Deflation has the opposite effect, increasing the cost of money. A flattening currency buys more today than it did yesterday. If the value of a dozen eggs was $four yesterday, and today it costs $3, each dollar is “more” on the market.
Therefore, normally, deflation and devaluation are contrary forces. In fact, the devaluation of the currency used as a planned 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 immediate and substantial dollar. In seven months, the price of the dollar has fallen by 40% in currency 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.
Overall, this is a larger dollar devaluation than any formal devaluation of the Chinese currency in recent decades.
Comparison of Chinese and American Devaluations
It worked. Deflation was brought to a halt, and commodity prices began to rise almost immediately. The “animal spirits” of the business community revived, the economy began to recover. U.S. GDP increased by 43% in the following four years. Unemployment fell from 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 revoked the concept that the competitive devaluations of the main economic powers in the 1930s were harmful.
Logically and empirically, deflation and devaluation move towards contrary directions. The devaluation of the currency, either imposed through the market or as a planned financial policy, is inflationary. A deflationary trend leads to the appreciation of money. This dating was transparent in the United States in the 1930s and has been transparent in Japan in more than 3 decades.
So what does it have to do with China Japania?
China is clearly now entrenched in a deflationary state. Consumer price inflation is near zero, and the producer prices are in deep deflation.
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 declined, the yuan has also declined. The drop in the Chinese output value index correlates with the 89% loss of the yuan.
China suffers from deflation and devaluation at the same time. This is a vital difference with respect to the delight in Japan
What does it mean? I’m not sure, but I don’t think it can be good.
It likely points to heightened instability in China’s economic situation.
The dynamics of any economy can be observed as a war between forces that have a tendency to create balance and forces that have a tendency to lead to an imbalance. The coexistence of deflation and devaluation in China today seems a force imbalance.
This Chinese economic policy of the hamstrings, in two ways. In the first place, any budget or economic stimulus destined to combat deflation covers the threat of further weakening the currency, which can exacerbate capital escape, eliminate foreign investments and Threatening the stability of the economic formula (as described in the anterior column). Second, it gets rid of the option of using the “Roosevelt maneuver” . pekín cannot combat deflation with devaluation.
The patience of deflation disrupts the functioning of credit markets, which ends up suffocating the bailout buoy for Chinese corporations that have too much.
It is difficult to see a way to get out of this trap. This “toxic combination” of deflation and devaluation represents an escalation of the stagnation situation with which Japan has not faced. Point out a superior threat point for China. The Japanese economy has fought in opposition to stagnation, however, it has never been bordering economic or political disorders. Japan could confuse without separating, and the strength of his currency was a reflected image of his basic stability. The weakness of China’s currency, even if the deflation is based, is a disturbing sign of socio -economic fragility that can go beyond the situation of the “standard” Japanese.
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