Thursday, November 29, 2012

China now analogous to Japan in the late 80's

That is the point of the essay When the Growth Model Changes, Abandon the Correlations by Dr. Michael Pettis.  He states "it is much more appropriate to compare China today with Japan in the late 1980s". 

Pettis backs this up by comparing the economic imbalances that existed for these two scenarios, concluding that China's economic imbalances today are much like those in Japan at its economic peak.

"Because of the serious imbalances China is much more like Japan in the late 1980s, with the major difference being that Japan never took debt, investment, and consumption imbalances to anywhere near the levels that China has taken them."

The conclusion that logically follows is that China is in for a long period of economic decline.  Their boom was generated by unsustainable buildups of imbalances and the reversing of this implies stagnance and decline in measures of economic activity.

2 comments:

Stagflationary Mark said...

I have been incredibly bearish on China since starting my blog in 2007. Their stock market has done nothing but plummet since then.

Their boom was generated by unsustainable buildups of imbalances and the reversing of this implies stagnance and decline in measures of economic activity.

I absolutely agree. Still bearish!

Stagflationary Mark said...

This is what I said in 2007.