A “China collapse” will be more horrendous than Japan’s Lost Decades

As the debt crisis due to the hype of real-estate GDP policy is piling up in China, economists in the West start speculating whether China will fall into the Japanese-style Lost Decades. I don’t know which Western economist or think tank started comparing this imminent Chinese crisis to Japan’s Lost Decades. This “analogy” is fabricated based on the sheer ignorance about China’s societal and political mechanism behind its real-estate crisis. In other words, it is and won’t be a purely economic phenomenon like the Japanese crisis in the early 1990s. Western experts generally believe that China’s crisis will only cause a smooth depression because, like always, they think China’s official statistics are credible and realistic. Their predictions are always based on China’s official statistics alone, but they never question whether the numbers are consistent with the reality in China and the structures in the numbers. However, because of its opaqueness, the societal and political backgrounds of those Chinese official statistics are concealed.

But before digging into the non-numerical factors beneath statistics, let’s see some superficial statistical facts about China’s situation compared to Japan’s. As typically believed now, China’s economic situation is similar to that of Japan in 1990, the night before the outbreak of the notorious Japanese crisis. If those economists are talking about the ratio between domestic debts and GDP, I will probably agree with them. But it ought to be clear that the economy of Japan in the early 1990s was obviously better than that of China in the early 2020s. In 1990, for example, Japan’s GDP per capita was ~$25,000, twice the GDP per capita of China in 2022. But here, we should notice that $25,000 in 1990 was valued at more than $25,000 in 2022. Regardless of the inflation factor, merely observing GDP per capita, China’s economic condition in 2023 is incomparable to that of Japan in the early 1990s.

Now let’s observe and discuss the factors that cannot be objectively or accurately described by statistics. The first is the innovation ability between Japan in 1990 and China in 2023. Economists, especially those parochial and illy-educated ones employed by investment banks, are addicted to numbers. Hence, they exemplify the astronomical amount of patents filed in China, claiming that China has already been the most or one of the most innovative economies globally. This is another fallacy by our scholastic economists. No matter how excellent the quantity of “Chinese innovations” is on paper, Chinese companies and brands are rarely seen in the global market except for a few EV firms, mobile phones and Lenovo; after the sanctions from the US and Japan, most have vanished outside China because they didn’t have essential technologies any more. Juxtaposed with the real strength of China, Japanese companies had been well-known and popular in the global markets by the early 1990s, including automobiles, ultra-precision machining systems, chemicals, electronics, etc. By 1990, Japan had already developed into an economy with a hegemony of innovation, technology and brand reputation. However, vastly most Chinese companies in 2023 are still manufacturing middle-level or basic components for developed countries, which are now being transferred to other developing economies.

Then, lest we forget, something most Western experts ignore: Social welfare. Western intellectuals, as I always mention, are fanatics for certain ethics or subjects in which they are interested. When unsatisfied with some aspects of their domestic homelands, they fanatically imagine that the statistics in China and North Korea reflect how totalitarian regimes work better; hence, they choose to believe the official statistics from these countries. That is precisely the case when Western economists analyse the social welfare issues in China. As most Western intellectuals always vow to expand social welfare, they surmise the statistics published by the Chinese Communist regime to be earnest; they regard China as a utopia with equality and fairness for the lower class (like their forerunners once adored the USSR). I suppose if these Western experts expressed their admiration of the “equality” and “fairness” in China’s social welfare (if there is any) to some Chinese people, the 600 million ordinary Chinese people living under $150 per month would slap them assertively. On the contrary, Japan had already constructed a universal social welfare system by 1990. Today, its medical care system is one of the best in the world.

When discussing social welfare, we cannot dodge away from unemployment, especially youth unemployment. Different resources unanimously agree that Japan’s peak youth unemployment rate during its Lost Decades didn’t surpass 15% (between 2000 and 2005). In August, the Chinese government announced that they would not publish the youth unemployment figure any more—the last time it published such a figure was in July, which was over 20%. Independent research before July even indicated that the youth unemployment rate had surpassed 45% in reality. Because of an incomplete social welfare system, which is based on the Communist aristocracy, combining the soaring youth unemployment, whether the imminent collapse due to real-estate debts will merely lead to an economic depression is a question. The most likely outcome is an economic-collapse-induced domestic commotion. Observing the latest governments overthrown and countries haunted by large-scale domestic chaos, e.g. Gaddafi’s Libya, Chile, Argentine and Egypt, we should be aware that all of them were suffering horrendous youth employment rates.

When discussing economics, it is impossible to ignore politics, societal culture and, sometimes, history of the country. However, Western economists today rarely research the politics, societal culture and history of the economy they are talking about. This is exactly what we see in their comparison between China in 2023 and Japan in 1990. Economies showing the same statistics do not necessarily have the same economic situation because of the aforementioned non-economic aspects; as for the statistics from authoritarian countries, detecting the propaganda lurking in the statistics requires more knowledge than economics. As economic activities are based on the large-scale co-operation among different paths in an economy, political institution of an economy indeed dominates the situation when it is stepping into an economic crisis. 

For the specific comparison between China in 2023 and Japan in 1990, these two economies are of different societal and political structures, which means these two economies would have entirely different reactions towards debt crisis and economic collapse. Due to the differences between modern democratic countries and single-party communist regimes, there are naturally a broad of societal differences between Japan and China, which cannot be fully explained in this article. In abstract, the differences between these two economies can be summarised as: Chinese government (i.e., the ruling party) is the “owner” of the whole country whereas the Japanese government is not the owner of Japan. When the ruling party owns the country, the instinct reaction of it in a tsunami is solidifying the political elites’ monopoly of resources. This action is based on looting the people and businesses that are not controlled by the state, i.e. not owned by the party elites; because the establishment is guaranteed by a small winning-coalition of political elites instead of other groups including ordinary people. If the crisis forces the ruling party to choose one side between the party elites and the people, it will choose the former group because relinquishing its monopoly will lead to ferocious revenge from the public.

Then, let’s stand on the people’s side to observe the society under an economic collapse. In Japan, when the public were unsatisfied with the government policies for curing the crisis, they could demonstrate their anger via elections and protests. The frequent alternations of governments in Japan before the government of Mr. Abe Shinzo reflect how people in a democracy express their unsatisfactory. On the contrary, Chinese people do not have this right. A common situation in a totalitarian or authoritarian country like China is: The ruling party rev up its propaganda machine when it senses the ubiquitous rage because, as mentioned above, it cannot afford to make concessions with their monopoly on power and fortune. As the people do not have any access to alternating the governing coalition, they will (gradually) point their fingers at the institution and the regime. When it becomes a common awareness among a certain portion of the people, large-scale commotion and violence between the regime and the society will loom and expand. And it is a common sense that political commotion and civil violence are more catastrophic for the country than a pure economic collapse.

Sadly, perhaps due to 30 years of super globalisation based purely on business common sense, social scientists and international observers have devolved in their ability of analysing non-numerical facts of a country and the world. As I previously expressed in many posts, an economy is far more complex and perplex than a series of statistics can possibly describe. For this reason, Western economists failed to predict the demise of the USSR in the 1960s and 70s. Now I am quite sure that this time they will be overwhelmed by the imminent China crisis.