China | Will the country enter into "Japanization" and "balance sheet recession"?

The report aims to identify the fundamental differences between China and Japan, highlighting key distinctions to conclude that China will not experience "Japanization" or a "balance sheet recession."

Key points

• Key points:
• China's economic slowdown in recent years, particularly during the post-pandemic period, has garnered global attention, raising concerns in the market about the possibility of China entering a phase of "Japanization" and a "balance sheet recession."
• China's current economic situation during the post-pandemic prompts a reflection on Japan's experience in the 1990s, following the burst of the stock and housing market bubble, followed by the so-called "lost 30 years" of the Japanese economy.
• The market has also raised questions about China's long-term growth outlook, including the growth model and engine that Chinese authorities will adopt to propel the country towards becoming a "high-income" economy.
• After revisiting the definition of "Japanization" and "balance sheet recession", we conclude the economic situation in current China and 1990s Japan have many fundamental differences.
• The biggest challenge to the Chinese economy in the long-term is not “Japanization” but “middle income trap”. We provide policy suggestions on China's long-term reform to overcome mid-income trap.

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