Yesterday I wrote about some reflections on Japan from a rule of law perspective.  Today I see some commentary on the China Economics Blog, so we’ll shift to econ.

This econ analysis story has been going on for a couple of years, with analysts looking at China’s huge forex reserves, its trade surpluses with the U.S., credit expansion, hot property markets - the list goes on.  Lots of stuff remind folks of Japan in the run up to the “Lost Decade”, so the comparisons are quite fun to write.

Then the other side gets to chime in with why China is different from Japan in the 1980s and 1990s and why, as the China Econ Blog puts it, “The same mistakes are not inevitable”.  I guess I’m part of this group, if I had to choose one over the other.  China’s stage of development is certainly a far cry from Japan’s twenty years ago.  China econ policy is also quite different, and I would say that its banking policy reforms in particular have been on the right track generally.  China’s policymakers have learned a lot from the Asian Financial Crisis and also from Japan’s recent experiences.  The world trading structure cannot be compared to where things were twenty years ago - how this effects China’s trading structure, its competitors, and its relationship with the U.S. (and multinationals) is a topic a bit too ambitious for a blog post.

Whether the stock market here is heading for trouble, no one knows, but it is certainly a concern.  Will the government succeed in slowing fixed asset investment?  They are trying (another rise in the reserve ratio today), with mixed results so far.  Will domestic consumption really take off?  I would venture a slightly timid ‘I think so’.  However, I would have to say that the comparison doesn’t fundamentally work for me, despite the fun little China macro stats that look so eerily familiar.

The link below has a nice re-post of a Greg Mankiw piece on the China-Japan comparison.

China Economics Blog: “Larry Summers on China”: Lessons from Japan