There was a time in the eighties when Japan was predicted to overtake take the US economy eventually. Revenge for the humiliation of WW2, and a return to power in the East. That bubble burst in the nineties, and the Japanese government faced a decision. Let the entire country go flat for who knows how long or face a sharp and brutal fall. They chose the first option, and entered “The Lost Decade.” A period from 1991 to 2002, in which the Japanese economy entered a period of “stagflation.” During this period, Japan didn’t grow or shrink. This stunted their economy, and they have never returned to that level of growth. They reached their ceiling. China has seen massive growth over the past twenty years and has been stumbling recently, so are they going in the same direction?

We don’t know yet, is the simple answer. It will depend on the CCP’s policy and its response. But, so far they haven’t done anything to stabilize their economy. The housing market in China is abhorrent, with gigantic buildings empty, and demolition is imminent. Deflation is coming (woof), generally, a sign that an economy is tanking, exports have shrunk, youth unemployment is at record highs (a long-term catastrophe), consumer spending has fallen dramatically, and once again their property market may be the worst in the world right now. There are too many houses, too much property, and too much debt. Combined with deflation could potentially cripple the Chinese economy for the rest of the decade. This is seriously bad.

I personally think that youth unemployment is one of the most troubling signs for China. If kids aren’t learning, gaining tools for the future, getting paid, and spending money then in twenty/thirty years, China could run into a real talent problem. Combine that with a shrinking population, and you run into a situation with no obvious solutions. It’s unclear if local governments could even spend money to fix the situation, as they way overspent during the pandemic.

On top of all of this, the Chinese government hasn’t done anything. They are going to have to do something because if they don’t they will find themselves in Japanese malaise.