In China, the economic landscape is currently mirroring a scenario reminiscent of Japan’s lost decades. The country is experiencing stagnant growth, a real estate bubble burst, and issues like deflation and an aging population, leading people to spend less and opt for cheap meals. This trend is worrying because it mimics Japan's economic situation from 30 years ago, where stagnant growth led to prolonged economic stagnation known as the lost decades. This comparison draws concerns from economists and policymakers in China, highlighting the need for strategic financial maneuvers to prevent similar economic stagnation.

The video explores the historical economic trajectory of Japan's bubble economy during the 1980s, which collapsed in the 1990s, leading to its lost decades. Japan's economy suffered from a burst real estate bubble, hesitant borrowing, and plummeting interest rates, creating a national economic conundrum. It faced a balance sheet recession when there was a prevalent sense of uncertainty. The lessons from Japan emphasize the need for effective monetary policy to encourage borrowing and spending while managing falling bond yields and their impact on the broader economy.

Main takeaways from the video:

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China's current economic situation reflects Japan's economic challenges in the 1990s, but with notable distinctions that may support recovery.
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Japan's experience shows the necessity of government intervention and strategic financial measures to preempt prolonged economic stagnation.
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China’s ability to innovate and urbanize, along with its larger domestic market, could help it avoid repeating Japan's lost decades if it learns from past experiences.
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Investment in technology and leveraging notable companies like Alibaba and Tencent are crucial to potentially altering the trajectory of the Chinese economy.
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Key Vocabularies and Common Phrases:

1. deflationary [diːˈfleɪʃənɛri] - (adjective) - Describing a decrease in the general level of prices of goods and services in an economy over a period of time. - Synonyms: (price decline, disinflation, depreciation)

China has reported its longest deflationary streak this century, and it's pushing ordinary Chinese to be frugal at a moment when policymakers desperately need them to spend.

2. frugal [ˈfruːɡəl] - (adjective) - Economical in use or expenditure; prudently saving or sparing; not wasteful. - Synonyms: (economical, thrifty, sparing)

China has reported its longest deflationary streak this century, and it's pushing ordinary Chinese to be frugal at a moment when policymakers desperately need them to spend.

3. exacerbate [ɪgˈzæsərˌbeɪt] - (verb) - To increase the severity, bitterness, or violence of; to aggravate. - Synonyms: (worsen, intensify, aggravate)

That's being exacerbated by China's demographic challenges.

4. demographic [ˌdɛməˈɡræfɪk] - (adjective) - Relating to the structure of populations. - Synonyms: (population-related, statistical)

That's being exacerbated by China's demographic challenges.

5. malaise [mælˈeɪz] - (noun) - A general feeling of discomfort or unease, whose exact cause is difficult to identify. - Synonyms: (unease, discomfort, discontent)

While China's present economic malaise echoes Japan's at the turn of the millennium, some fundamental differences offer optimism that recovery is possible.

6. urbanization [ˌɜːrbənɪˈzeɪʃən] - (noun) - The process of making an area more urban. - Synonyms: (city development, urban expansion, metropolitan growth)

Economists also highlight China's greater room for urbanization compared to 90s Japan.

7. plummeting [ˈplʌmɪtɪŋ] - (verb) - To fall or drop suddenly in amount or value. - Synonyms: (dropping, diving, declining)

We saw the property bubble burst, a debt crisis occurred, and people rushed to the safety of government debt.

8. infrastructure [ˈɪnfrəˌstrʌktʃər] - (noun) - The basic physical and organizational structures and facilities needed for the operation of a society or enterprise. - Synonyms: (framework, foundation, base)

In 2024, industry loans were up more than 12%. infrastructure was up as well, and real estate development was still positive.

9. inventiveness [ɪnˈvɛntɪvnɚs] - (noun) - The quality of being inventive; creativity. - Synonyms: (creativity, ingenuity, innovation)

And then there's China's inventiveness.

10. monetary policy [ˈmɒnɪˌtɛri ˈpɒləsi] - (noun phrase) - The policy laid down by the central bank concerning the supply of money in the economy and the rate of interest. - Synonyms: (financial strategy, economic policy, fiscal policy)

You have to have borrowers out there for your monetary policy to work.

Can China Avoid Japan’s Lost Decades?

These days in China, people are looking for cheap eats. That's because a lot of people are feeling kind of broke. Discount delicacies like these have gone viral, especially at affordable spots like this Japanese restaurant, Sizeria. But meal deals aren't all China's picked up from Japan. The whole economy is looking disconcertingly similar.

A lot of people in China today are concerned about whether they are repeating what happened to Japan 30 some years ago. That'd be stagnant growth, a burst real estate bubble, falling bond yields, a sluggish credit market and an aging population. Not to mention price growth close to zero.

China has reported its longest deflationary streak this century, and it's pushing ordinary Chinese to be frugal at a moment when policymakers desperately need them to spend. If consumers continue to opt to save instead of spend, then companies are going to make less money. They're going to have less to give to their workers. And that spiral will continue. Unless, that is, Beijing can learn from Japan's devastating lost decades before it's too late.

This is Tokyo, the world's largest, most rapidly growing city. Japan's economy grew exponentially after World War II, and it peaked during the 1980s. Credit was cheap, the yen was strong, and the economy boomed. Confident consumers borrowed to snap up property and stocks whose values were surging, while Japanese corporations splurged at home as well as on some striking purchases abroad.

But the moment the 80s were over, so were many fortunes. On the first day of 1990s, Japanese market began collapsing. With every day the Japanese yen sinks to new lows, there's exasperation on the Tokyo currency exchange.

After that, the lost decades began. We saw the property bubble burst, a debt crisis occurred, and people rushed to the safety of government debt. Japan entered what's called a balance sheet recession. This is the first problem we need to understand.

So imagine you want to buy a house as an investment, you take out a loan to pay for it, hoping the property's value will rise. But all of a sudden, prices start dropping. Your household income remains the same, but you feel poorer by the day. That makes you spend less. Pay down your debt and secure what you can for the future.

But savings a good thing, right? Well, not necessarily. If someone is saving money, someone else has to borrow this money to keep the economy going. If everybody's saving money, no one was borrowing money. Economy will shrink like crazy. Central banks have tools to control this. In theory, they can encourage borrowing and spending by lowering interest rates, as Japan did for a very, very long time.

But if people and businesses fear that the economy has further to fall. Locking their money away may feel like the smarter move. You have to have borrowers out there for your monetary policy to work. If there are no borrowers, monetary policy doesn't work. It's dead in the water.

Which leads us to the second problem. The financial institutions who are the recipients of this money have to put this money somewhere, have to place this money to earn interest. But if the private sector as a group is not borrowing money, the only borrower left is the government. So investors start buying up government debt in the form of bonds.

And remember Japan's plunging interest rates. The same thing happens with bond yields as more and more investors pilot. And that's, that's why government bond yields come down to these ridiculously low levels. Ultra low bond yields have negatively impacted bank earnings. It has distorted the returns of pension savers. It also crushes investment returns for those looking to invest for income.

And that's what we're now seeing play out in some sectors in China. China's bond yields have been trending like this, down and down, reaching a record low at the start of this year. In July of 2024, new loans in China were actually negative. So that meant people paid back more loans than they took out during that month. That was the first time that that happened in 19 years.

And just as is the case in 90s Japan, it can be traced to an endemic real estate crisis. For a long time, property was seen as the safe out asset. At its height, about 75% of all household wealth was stored in property. And so as the price of homes has come down, that has really hurt consumer confidence because they're looking at the value of their home going down and feeling poorer by the day.

That's being exacerbated by China's demographic challenges. Its population is getting smaller and grayer again, just like Japan. It's a reminder of the very human psychological components at play here.

This is Molly Xiao, a 25 year old professional based in Shanghai. She uses popular apps like Dianping and Meituan to find restaurants offering discounts. It's become a way of life for millions of people like her.

While China's present economic malaise echoes Japan's at the turn of the millennium, some fundamental differences offer optimism that recovery is possible. Take a look at lending for example. In 2024, industry loans were up more than 12%. infrastructure was up as well, and real estate development was still positive. Taken together, this all shows a trend at large. China's private sector is still borrowing.

Economists also highlight China's greater room for urbanization compared to 90s Japan, as well as the larger domestic market it has to sell into. And then there's China's inventiveness. Alibaba Tencent are two of the world's leading tech platforms, and China has more software developers than the US by a ratio of approximately 3 to 1.

While there's no guaranteeing that China will have a technological revolution, if you look at some of the things that have happened more recently, I think that suggests that there's a possibility that China could see technological advances that could really change the trajectory of the economy in the near future.

Finally, there's also hope that the country can learn from its neighbors. Lost decades. China doesn't have to go through that. We lost a generation in Japan because we didn't know what the disease was. The Chinese policymakers and the Chinese government now have a playbook to read on what exactly happened to Japan.

When you are in this type of recession where individually everyone is doing the right things, but collectively you get the wrong result, government has to be in there to keep the economy going. Sam.

ECONOMICS, GLOBAL, TECHNOLOGY, CHINA ECONOMY, JAPAN LOST DECADES, REAL ESTATE CRISIS, BLOOMBERG ORIGINALS