Sizzling property prices, snarling a debt load of tourists and wealthy magnates ready to clap handsome sums miraculous for art: China begins to look like Japan before its bubble economy burst in the early 1990s.
The similarities are not lost in Beijing: Xi Jinping has commissioned a study to help China avoid the pitfalls of Japan, according to Bloomberg, which slows growth and rating agencies are warning of their debt.
China’s debt fears rose after the IMF warned on Tuesday that the second world economy was on a “dangerous” road, urging Beijing to take a more sustainable form and accelerate structural reforms. China has also been downgraded by Moody this summer, with the credit rating agency citing the country’s debt bubble, sparking an unfortunate reaction from Beijing.
Debt-related investments in infrastructure and real estate have supported China’s growth for years, as the global financial crisis of a decade decimated growth in Western markets as booming exporters grew.
Japan was the original growth of Asian tiger rising to an average of 9.0 percent annually between 1955 and 1973 in the long post-war boom, making it one of the world’s great powers.
China has also experienced strong growth – replacing Japan as the world’s number two economy in 2010 – and has not had a recession in decades. Japan also groans under a huge national debt, the legacy of monetary and fiscal policies aimed at stimulating growth.
Japan’s debt burden now accounts for more than 200% of its gross domestic product. China’s debt is about 260 percent of GDP, up from about 140 percent before the financial crisis of 2008. Japan in the 80’s era has kept interest rates low, creating excessive liquidity in its economy .
Successful purchases saw land prices quadruple in the mid-1980s and the Nikkei stock index reached almost 40,000 in 1989, double its current level.
But all is over when the central bank has abruptly restricted policy. Stock prices and land plunged, companies stopped investing, consumers stopped spending and bad loans were piled up. This resulted in a period of low or zero growth known as “lost decades”.
Chinese stock prices remain well out of their 2015 record. But mainland home prices have risen, especially in centers such as Beijing, Shanghai and industrial power in southern Shenzhen. Both countries have seen their arrival on the global stage announced for hitting foreign asset acquisition, while China’s foreign investment reached $ 170 billion last year, down 44 percent in 2015.
Insurance China Anbang bought from the Waldorf Astoria hotel in New York for almost 2 billion in 2014, while tycoon Liu Yiqian bought the “Nu Couche” Modigliani to a record 170.4 million by 2015.
These big-ticket purchases carry signals when Sony Columbia Pictures has accumulated 3.4 billion in 1989 and Mitsubishi Estate paid almost 850 million dollars for majority ownership in the operator of Rockefeller Center in New York.
In 1990, Japanese photographer Ryoei Saito bought Vincent van Gogh’s “Portrait of Dr. Gachet” at 82.5 million and the Bal du Moulin de la Galette by Pierre-Auguste Renoir 78.1 million.
“What is alarming is that people in China think,” China is special, so we are ready, “This is exactly how people felt in Japan during the bubble era.” “Said Kokichiro Mio, chief economist at the NLI Research Institute. In addition, China is not a mirror image of Japan 30 years ago.
China’s economy and its currency is tightly controlled by the state and protected from foreign influence to a much higher degree than Japan’s. Beijing launched an offensive against the “gray” rhinoceros – powerful private conglomerates – amid fears that ditch dangerous levels of debt by buying delusions and threatening financial stability.