William Pesek, author of “Japanization: what the world can learn from Japan`s lost decades,” has written a piece for the Nikkei Asian Review about the four things China must learn from the lost decades Japan is still trying to escape from:
- Own the Problem. The list of similar reference points between 1980s Japan and today’s China is growing, but the first step towards addressing a problem is admitting you have one.
- Be Quick and Bold. Nearly three decades after its bubble burst, Japan is still grappling with deflation, stagnant wages and waning market share as a result of a succession of governments (18 since 1989) acting too timidly to strengthen the country’s balance sheet. China needs to: 1) Clamp down hard on credit growth and demand that banks make an honest and public accounting of their riskiest liabilities; 2) Pounce on a shadow banking system feeding uncompetitive state-owned companies with loans they can never replay; and 3) Create a mechanism to dispose of distressed assets, perhaps modeled after America’s Resolution Trust Corp. from the 1980s.
- Watch the Currency. For President Xi Jinping, some export losses are preferable to Donald Trump imposing 45% import tariffs or changing the “one China” policy toward Taiwan. HOWEVER, one of Tokyo’s biggest blunders was agreeing to the 1985 Plaza Accord which strengthened the yen sharply versus the dollar, making it easier to make terrible bets on golf courses in California and Hawaii and overpay for every Picasso, Renoir and Van Gogh on auction.
- Indulge in Shock Doctrine. Japan erred by not exploiting moments of turmoil to restructure its corporate system, shake up a bureaucracy geared more for 1989 than 2017 or engineer a true financial big bang.
To read the whole article, Japan’s four lessons for debt addict China, go to the website of the Nikkei Asian Review.
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