As China’s economy faces challenges, investors are raising questions about whether it could follow a path similar to Japan’s experience in the 1990s. Goldman Sachs Research has identified certain parallels between the two situations, but it emphasizes that China’s potential “Japanification” is not a foregone conclusion.
While factors like declining demographics, high levels of debt, and the bursting of asset bubbles played crucial roles in Japan’s economic stagnation at the turn of the century, Goldman Sachs Research China Economist Hui Shan points out in their report that a significant contributing factor to Japan’s “Japanification” was a fundamental shift in long-term growth expectations. Shan notes that growth expectations in China, despite facing challenges such as worsening demographics, a high debt burden, and a deflating property market, are displaying signs of a gradual decline. However, policymakers have the capacity to steer clear of a Japanese-style economic slump.
