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As China’s GDP inches closer to Japan’s will it learn from the lost decade?

January 22, 2010

China and Japan have always shared a very sweet and sour relationship, but now as China’s economy booms and Japan’s contracts,  bringing the two economies closer in terms of GDP, will China have the humility to look back in time and learn from Japan’s mistakes?

Post the announcement of China’s GDP figures on Wednesday, Chinese online forums were abuzz with young mandarins congratulating themselves for becoming the world’s second largest economy, basking in the sunshine they are dreaming of a day when China is the world’s largest economy. The sentiment echo’s Japan in the 1980’s – just before the land of the rising sun lost its luminosity and entered the lost decade.

Back in the 1980’s, fueled by surging exports it was the Japanese economy that was booming. Tipped to overtake the US then, Japanese consumer sentiment was at an all time high. Banks had liberal lending policies and property prices had skyrocketed so much that it was said that the Imperial Palace in central Tokyo was worth more than all the real estate in California. A 10,000 yen note folded as tightly as possible and dropped in Tokyo’s city center was worth less than the land it covered. Riding high, the Japanese went on a spending spree internationally, and firmly established their place on the global high table.

And then the asset bubble burst…crippling corporations and citizens under a huge debt burden. Property prices nosedived and the Nikki crashed.  To salvage the economy, the Japanese government stepped in, pouring money into the system and investing in infrastructure.  It is excessive public spending that has increased Japan’s national debt a problem which has only magnified today.

The Chinese suffer from the same ailments – high savings, over valued property, an undervalued exchange rate and rapid export-led growth creating the world’s biggest current account surplus. Economists and analysts worldwide are already weary of China’s overheated economy, but is Beijing listening? Is it humble to learn from the historical mistakes of its neighbor? Will the Chinese government prove its might by controlling the pressure within the bubble? Even if China’s GDP surpasses Japan’s does that make it a developed economy? Discuss it on the INCHIN Forum.

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