Economic Rebalancing and Growth: the Japanese experience and China’s prospects

The Chinese growth model has generated domestic imbalances and social problems. The Chinese leadership is aware of the urgency to address these problems and improve the quality of the growth process. Engineering a successful change (ensuring more even distribution of national income, as well as a rebalancing of the economy away from exports and investment and towards domestic consumption), however, is politically and economically difficult as it may be associated with a slow-down in the rate of growth and the Communist Party's prerogatives. The Japanese experience can help to interpret the current state of China and several insights can be drawn. Japan had to change its growth strategy while preserving high GDP growth at least three times in the past: at the end of the 1960s, when the mobilization of surplus labour was completed; in the mid-1980s, when Japan faced a dramatic appreciation of the yen and liberalized financial flows, moving the economy away from exports; in the 1990s, after the burst of the real estate and stock exchange bubbles. This work addresses whether a parallel between present-China and Japan in the past can be meaningfully made. It considers a long time span for Japan to show that interesting insights can be drawn from various periods of its experience. Short of claiming that China and Japan can be juxtaposed, this contribution takes stock of the Japanese experience to inform the Chinese authorities and those interested in the Chinese economic development. A comparative approach may serve to identify the successful actions and reforms which contributed to make Japan an advanced country after only a few decades from the end of the Second World War and may help to avoid those mistakes that contributed to turn Japan into a stagnating economy.