Assessing whether China will experience the lost decade of Japan

Abstract

ABSTRACT Japan’s lost decade has long puzzled economists, specifically as to what brought it about. As China’s current economic conditions resemble Japan’s in the 1980s, this has prompted concern China might suffer a similar fate. This paper identifies that the response of the Japanese central bank toward the Plaza Accord, which is unfettered lending was the key factor of lost decades. By contrasting Sino-US and Japan-US trade wars, this paper argues that China will not fall foul of the same situation of accepting a new Plaza Accord. By comparing China’s bubble economy now with Japan’s bubble economy in the 1980s, this paper argues that the fallout from a burst Chinese bubble is expected to be less severe than Japan’s early 1990s. Furthermore, by analyzing the two countries’ respective debt problems and aging populations, it is concluded that these issues pose no significant threat to Chinese economic growth in the short term.