It’s Baaaack, But In China This Time

What does Japanification mean? From the same article that came up with my favorite chart from 2023 (shown above):

“It can be described simply as a protracted period of deflation, economic sluggishness, property market declines and financial stress as households/companies/governments unsuccessfully try to deleverage after a debt binge.”

And is that where China finds itself today? Well, it is difficult to say, because data is hard to come by:

The statistics bureau stopped publishing a consumer-confidence index after April numbers fell to levels last seen during the depths of the pandemic. With youth unemployment climbing remorselessly, the same bureau stopped reporting that statistic this week, saying it is reviewing how to count jobless young.

https://www.economist.com/china/2023/08/17/chinas-slowing-economy-seen-from-ground-level

Data has, of course, been hard to come by for a while:

As China announces that it will no longer be publishing youth unemployment data (because the rate is very high lol), a reminder that they have been steadily publishing fewer and fewer economic indicators in recent years as the data has become less rosy https://t.co/tdMDWhPeOA pic.twitter.com/ZuE6p6ZZAP

— John Burn-Murdoch (@jburnmurdoch) August 15, 2023

Bu you can suppress bad news for only so long, and to even the most casual of China watchers, it has been clear for a while that China is slowing down. And China slowing down is, in a sense, both inevitable and predictable. If you know anything about China’s demographics, it’s emphasis on capital-led growth and the Great Decoupling, China had to slow down.

But ah, the debt. That is where the problems become truly worrisome:

According to the BIS, China’s total non-financial credit/GDP ratio approached 297% of GDP by end-2022, similar to Japan in the 1990’s. Also similarly, debt is mainly domestic, and the domestic saving rate is high in both countries.

China’s Japanification, by Robin Wigglesworth in FT

Plus:

1. China is ageing more rapidly than Japan was in the 1990’s
2. China’s debt, when properly accounted for, is even more than Japan’s was.
3. China has less wriggle room when it comes to monetary policy.
4. China also seems to be less willing to use monetary policy as a tool.

And above all, culture. I wish I knew more about China, and I wish I could travel to China. Lots of reasons for me to say this (food included, and it is one of the top three reasons) – but in this blog post, I say I wish I could travel to China to make sense of this from The Economist.

It is difficult to excerpt from it, but here are the concluding paragraphs:

Does Mr Xi understand this? His thoughts on how to achieve national greatness have evolved, along with his message to young people. A few months after coming to power in 2012 he met a group of young entrepreneurs, volunteers and students, telling them to “dare to dream, to bravely chase their dreams and to strive to fulfil them”. Their ambitions will make China great, he said. One beaming participant, who had recently climbed Mount Everest, said it was a good time to be young.
Now, though, Mr Xi says the “Chinese Dream” of national rejuvenation is to be achieved by focusing on collective goals, rather than by encouraging individual aspirations. He admonishes the young to obey the party and toughen up—to “engrave the blood of their youth on the monuments of history, just as our fathers did.” That is a message that relatively few young people are taking to heart. Told to eat bitterness, they prefer to let it rot.

https://www.economist.com/briefing/2023/08/17/chinas-defeated-youth

Keep a close eye on China in the coming months, it is a story that is likely to be interesting and of immense relevance to everybody who lives on this planet.

By the way, did you get why today’s blogpost is titled the way it is? If you are a student of macro, you should have. You might think there’s a typo on my part, but hey, China deserves an extra “a”.

At least.