Salient to Investors:

William Pesek writes:

China is very susceptible to Japanization, and only bold and creative action can avoid it. However, for every pledge to cut excess production capacity, audit government borrowings and tolerate sub-8 percent growth, two others assure markets that growth won’t be allowed to slow too much.

Japan became rich before its society became old, so had decades to build the social contract between public and private sectors,innovative companies, and open financial system that enabled it to muddle along for two decades without a huge debt meltdown or social unrest. Tokyo has delayed change at all costs by relying on current-account surpluses, huge budget deficits and asset bubbles.

Brian Reading, and Diana Choyleva at Lombard Street Research say China has so far followed in the footsteps of Japan, but is not yet over-indebted so can avoid Japan’s mistakes if it changes course.  They say running current account surpluses, budget deficits and spawning bubbles will eventually run out of steam and cause China’s growth to stall, and it does not have 20 more years to be blowing up bubbles.

Grace Ng at JPMorgan Chase warns that China today and Japan in the 1980s share an uncannily similar buildup in broad measures of credit to almost double their economies’ size. Japan’s debt-to-GDP ratio rose to 187 percent in 2012 from 105 percent in 2000, versus Japan’s increase to 176 percent in 1990 from 127 percent in 1980. Japan’s debt could approach 250 percent of GDP in 2014 – in a fast-aging nation that is losing global competitiveness.

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