After 30 years of economic stagnation, by 2024, the Japanese economy remains almost identical in size to its 1995 counterpart. The Chinese economy mirrors this trend, but in a more exacerbated manner, grappling with a double whammy of deflationary pressures and inflationary forces.
In a deflationary setting, where demand trails behind supply, prices inevitably plummet. However, this downturn fuels consumer pessimism, prompting delayed purchases and a downward spiral in production, thereby worsening unemployment and suppressing demand.
Any major policy shift in the West toward restricting Chinese exports, particularly in sectors like electric vehicles, would further depress the domestic market. Compounded by the fact that 70% of its citizens' wealth is tied up in depreciating real estate, China finds itself deeply mired in the quagmire of deflation.
Meanwhile, China's heavy reliance on imports, spanning energy and food, exposes it to the peril of simultaneous inflation and deflation—an intricate scenario with unprecedented ramifications.
Japan takes three long decades to bottom out of deflation. Would China fare better than its Pacific neighbor?
Author: renqiulan
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