After two decades of immediate expansion, the Chinese economy has grasped. Real expansion has slowed considerably, as reported through the World Bank and through the Rhodium organization (as opposed to the official Beijing figures, which are in large part updated). In existing dollars, expansion turns out to have been negative in comparison to 2021-2023.
This Stal-Out was compared to the heartbreaking economic recession in Japan that began in the 1990s with the cave of the Japanese asset market, and led to a stagnation from Japan. The rate of more than 5% consisting with the year from 1960 to 1990, slowed to 0. 9% consisting with the year from 1990 to 2007, and collapsed even more from then on.
The most striking sign of this economic malaise has been ultra-fakable persistent inflation, with a jaunt of genuine deflation in thirteen of the next 28 years.
Japanese Inflation:Deflation Trend During Japanification
What he has known as Japanese includes a complete basket of socioconomic deplorables.
This ugly constellation of the blockade of demanding situations has proven to be very resistant to government stimulation measures. Investors have earned any recovery more or less. The Japanese inventory market has returned to its 1989 peak for almost 35 years.
Japanese inventory market 1989-2024
The genuine Japanese real estate market recovered.
Japanese Housing Index 1991-2024
Japanification has been a tragedy for Japan, derailing the Japanese post-war growth miracle. From 1960 to 1990, the Japanese economy was growing three times faster than the American economy (albeit starting from a much smaller base).
Japan vs. United States 1960-1990
With the start of the Japanese season, Japan has arrived late. From 1991 to 2019, the Japanese economy was higher at a quarter of the rate of the U. S. economy.
Japan vs. USA 1991-2019
In summary, Japan fell from the fast economic road and never recovered. The effects of the Japanese feel up to this day.
There is a developing pessimism among China’s observers in the West (and among many internal China) that China can get into a similar scenario.
China’s money markets are signs of intermittent danger. The inventory market is down 25% in the last 4 years. The government has pushed dubious countermeasures, ordering banks and insurance corporations to buy inventories in an attempt to prop up inventory markets. It didn’t work.
United States vs China – Bours commission
Chinese real estate values are falling fast.
Chinese housing index
Beijing is leaning on China’s state-owned banks to support the real estate market by buying up unsold houses. This is not working either.
Discounts on the value of genuine property in China almost perfectly adhere to the Japanese delegated (96%correlation).
Japan vs China – Real Estate Prices
Chinese interest rates have fallen. Bond yields have fallen to a historical minimum, bond costs are triggered: a vast flight to protection is being made.
Chinese bond performance
Investors are fleeing “risk” in Chinese markets. The Government is obviously involved on the analogy of Japan and “have told analysts and economists who go to banks to avoid . . . comparisons with the stagnation of Japan. “
Other similarities with the Japanese revel in abound. Youth unemployment in China has skyrocketed. Fertility has fallen. Deflation set in. Producer costs have declined for 27 consecutive months.
China’s PPI is negative
The case of the Japanese situation is strong. But China faces a problem, which is likely to be more serious than the Japanese analogy indicates.
In Japan in the 1990s, inventory costs fell and bond costs shot up. But anything else was edited there, which not in China.
As Japanese inflation fell and turned into outright deflation, the value of the Yen almost doubled. In 1990, the Yen traded at around ¥160 to the dollar. Five years later, the Yen reached ¥84 to $1. The correlation of deflation with the strengthening of the Yen from 1990 to 1995 was 87%.
As Japanese Inflation declined, the Yen Strengthened, 1990-1995
Over 5 decades (1971-2024), this relationship held up. Inflation drove devaluation. Deflation, on the other hand, increased the Yen’s value.
During the 4 years beyond 4 years (2020-2024), while Japanese inflation has despite everything higher significantly, and the correlation with the decrease in the price of YEN has reached 91%, that is, the Recent Japanese inflation is almost perfectly correlated with the devaluation of the currency.
YEN inflation is correlated with devaluation 2020-2024
This makes sense. Inflation reduces the purchasing power of the currency. If a $ or ¥ buys less than before, its value should logically decline.
Deflation is expected to have the opposite effect, expanding the cost of the currency. A currency that is deflated buys more today than yesterday. If the cost of a dozen eggs was 4 dollars yesterday, and today is 3 dollars, every dollar costs “more” in the market.
Therefore, normally, deflation and devaluation are contrary forces. In fact, currency devaluation used as a planned policy to counter deflation.
In the United States, in the 1930s, in the depths of the wonderful depression, Franklin Roosevelt intentionally, unilaterally, and boldly devalued the U. S. dollar by expanding the value of gold through 70% over a very short period.
This controversial policy was subject to much criticism and many challenges — and was only narrowly upheld by the Supreme Court. It was also highly effective.
The devaluation of the dollar has been immediate and substantial. In seven months, the dollar fell 40% in exchange markets.
1933 – The devaluation of the dollar
It was economic shock and awe. The dollar had had a fixed value in terms of gold — at $20.76 per ounce — for more than 50 years. FDR broke the connection almost overnight, raising the price of gold to $35 per ounce. His approach was ad hoc, and almost capricious.
Overall, this is a larger dollar devaluation than any formal devaluation of the Chinese currency in recent decades.
Comparison of Chinese and American Devaluations
It worked. The deflation stopped and the costs of raw fabrics began to accumulate almost immediately. The “animal spirits” of the global company have revived, the economy began to recover. The American GDP building updated 43% in the next 4 years. Unemployment buildings of 25% 14%.
Effect of FDR’s devaluation on prices
FDR’s gold program is often overlooked as a factor that helped lift the country out of the Depression. The academic consensus today is that “Roosevelt’s reflation accelerated America’s recovery.”
This harvest overturned the concept that the competitive devaluations of the major economic powers in the 1930s were harmful.
Logically and empirically, deflation and devaluation move in opposite directions. Currency devaluation, whether imposed through the market or as a planned financial policy, is inflationary. A deflationary trend leads to the appreciation of money. This dating was transparent in the United States in the 1930s and has been transparent in Japan for more than 3 decades.
So what does it have to do with China Japania?
China is clearly now entrenched in a deflationary state. Consumer price inflation is near zero, and the producer prices are in deep deflation.
But the Chinese currency does not appreciate, as it should, as expected by the Japanese example. Instead, Yuan temporarily loses the value. Now it is a decrease that at least 15 years.
Devaluation of the Yuan 2015-2025
Since December 2021, as inflation has declined, the yuan has also declined. The drop in the Chinese output value index correlates with the 89% loss of the yuan.
China suffers deflation and devaluation at the same time. This is a vital difference with the experience of Japan
What does that mean? I’m not sure, but I don’t think it can be good.
It probably indicates a building on instability in China’s economic situation.
The dynamics of any economy can be seen as a battle between the forces that tend to create an equilibrium, and the forces that tend to lead to disequilibrium. The anomalous co-existence of deflation and devaluation in China today feels like a force for disequilibrium.
This Chinese economic policy of the hamstrings, in two forms. First, any fiscal or economic stimulus that wishes to be designed to combat deflation covers the threat of further weakening the currency, which can exacerbate capital flight, suppress foreign investment, and threaten the stability of the economic formula (as described in the last column). Second, it gets rid of the “Roosevelt maneuver” option. Beijing cannot combat deflation with devaluation.
The patience of deflation disrupts the functioning of credit markets, which ends up suffocating the bailout buoy for Chinese corporations that have too much.
It’s hard to see a way out of this trap. This “toxic combination” of deflation and devaluation represents an escalation of the stalemate that Japan has not faced. It signals a higher threat point for China. La Japanese economy has struggled in opposition to stagnation, yet it has never been skirting economic or political upheaval. Japan was able to confuse without separating, and the strength of its currency was a mirror image of its basic stability. The weakness of China’s currency, even if deflation settles, is a disturbing sign of socioeconomic fragility that may go beyond the situation of the “standard” Japanese.
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