China is NOT Japan

Interesting paper from Ken Rogoff and Yuanchen Yang:

Despite these parallels, China is not Japan. The structure of leverage differs: Japan’s crisis centred on private banks and corporations, whereas China’s vulnerabilities are more concentrated in local governments and state-linked entities. China also retains greater administrative capacity to postpone loss recognition and prevent outright financial sector collapse.

China also has other advantages that Japan lacked. Productivity growth remains stronger, and China sits near the global frontier in several fast-growing sectors, including electric vehicles, renewable energy, and more recently, artificial intelligence. These factors may help prevent a full-scale replication of Japan’s stagnation.

But the differences cut both ways. China is ageing faster than Japan did in the 1990s, and as a still-developing country, it lacks Japan’s extensive social safety net. Moreover, newer growth engines, no matter how dynamic, are still small relative to real estate and infrastructure. Rapidly shifting from one export-led boom to another is unlikely to substitute fully for a domestic demand shortfall in an economy of China’s size.