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How Close Is China's Medium-Term Outlook to That of Japan? An Economic-Historical Perspective

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  • Alicia Garcia Herrero

    (Bruegel, National University Singapore, Hong Kong University of Science and Technology)

Abstract

After decades of strong growth, China's economy began a steady slowdown around 2012. Current GDP growth is less than half of previous levels, and the trend is expected to continue. Since its real estate bubble burst in mid-2021, deflationary pressures have raised concerns that China may follow Japan's trajectory from the early 1990s. Both countries show similar structural traits: low private consumption, high savings and significant economic imbalances - China's even more so. Their policy responses have also mirrored each other: slow monetary and fiscal easing, focus on manufacturing and reliance on trade surpluses, prompting US protectionist reactions. Like Japan, China is offshoring production to counteract trade barriers. However, China differs in key ways: it is still a developing economy with more room for growth and is a far stronger geopolitical force than Japan was. This power both motivates US technological restrictions and gives China broader global leverage, especially in the Global South. Whether China will repeat Japan's path remains a crucial, open question.

Suggested Citation

  • Alicia Garcia Herrero, 2025. "How Close Is China's Medium-Term Outlook to That of Japan? An Economic-Historical Perspective," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 24(3), pages 23-51.
    • Handle: RePEc:mnb:finrev:v:24:y:2025:i:3:p:23-51
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    References listed on IDEAS

    as
    1. Bayoumi, Tamim, 2001. "The morning after: explaining the slowdown in Japanese growth in the 1990s," Journal of International Economics, Elsevier, vol. 53(2), pages 241-259, April.
    2. Naomi Griffin & Kazuhiko Odaki, 2009. "Reallocation and productivity growth in Japan: revisiting the lost decade of the 1990s," Journal of Productivity Analysis, Springer, vol. 31(2), pages 125-136, April.
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    Keywords

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    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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