Interview: China’s Policymakers Can Learn From Japan’s Mistakes

China is witnessing shifts in household consumption patterns akin to those Japan experienced as its population aged and economic growth stalled, offering potential lessons for Chinese policymakers, according to Zhang Yingqiu, chief analyst at Nomura Orient International Securities Co. Ltd [para. 1]. In the 1990s, Japan's economy stagnated after a boom period when bubbles burst in its stock and housing markets, leading to debt crises and prolonged deflation [para. 2]. Similarly, China's economic growth has faced hurdles since 2020, impacted by the COVID-19 pandemic, a declining property market, local government debt issues, and weak consumption. Deflationary pressures have persisted, with producer prices dropping year-on-year since late 2022, and consumer price index gains remaining low since early 2023 [para. 3].

Both countries are challenged by declining birthrates and aging populations [para. 4]. Zhang advises China to learn from Japan’s mistakes, emphasizing the importance of avoiding the policy missteps Japan made over 30 years [para. 5]. She highlights how China's present situation mirrors Japan's post-bubble decade, where Japan focused only on expansionary fiscal policies initially without tackling its banking sector's debt issues [para. 6]. A significant lesson from Japan is that its prolonged economic stimulus measures were not sustained long enough, with active domestic demand expansion halting until Abenomics began in 2013 [para. 7].

The introduction of negative interest rates by the Bank of Japan in 2016 to stimulate growth did not revive the economy, and this policy was abandoned in March after wage growth improved and deflation signs receded [para. 8]. Inflation in Japan has been partly driven by import price increases, raising living costs for many households and maintaining a wide wealth gap [para. 9]. Zhang observes that during Japan’s economic stagnation, a preference for inexpensive experiences emerged among youths, a trend mirrored in China's urban explorative activities like "city walking" [para. 10].

Household sizes in Japan have been shrinking since the 1960s, leading to increased dining out or use of pre-prepared meals, akin to the rise of food delivery services in China. Zhang notes that such services can signify either consumption upgrades or downgrades based on the region's economic development, with high-tier cities seeing it as a downgrade from dining out [para. 11]. Generational consumption differences observed in Japan, such as a shift towards low-strength alcohol like pre-mixed cocktails, may similarly develop in China over the coming decades [para. 12]. Additionally, as seen in Japan, China’s aging population might lead to increased spending on wellness and cosmetics [para. 13].