Capital IdeasTM
Investment insights from Capital Group
China
Anne Vandenabeele
Concerns about China’s growth slowdown have led to growing comparisons with 1980s Japan and the circumstances that led to the latter’s stagnation over recent decades.
While China's long-term growth picture and imbalances may not ultimately be as severe, weakness in confidence and investment, plus currently limited stimulus potential, could create the same overcapacity and downshift in expectations.
Analysis so far has highlighted more obvious similarities between the two, including demographic headwinds and a property crisis, but spent less time on factors including investment, productivity, stimulus and expectations. We believe these are equally (if not more) relevant for China today.
Japan: Real potential growth, %
.png "Japan Real potential growth")
Source: LSEG Datastream, Capital Group, International Monetary Fund (IMF)
China real GDP growth: annual and trend, y/y
.png "China Real potential growth")
Source: Capital Strategy Research, CEIC, National Bureau of Statistics of China
Among the key questions in global macroeconomic circles at present is whether China is already on the same path and what the country could do avoid this fate. ‘Japanification’ has become a well-used term in this debate, broadly referring to a protracted period of deflation, economic sluggishness, property market declines and financial market stress, as households, companies and governments try to reduce excess leverage.
Our latest insights
RELATED INSIGHTS
Hear from our investment team.
Sign up now to get industry-leading insights and timely articles delivered to your inbox.
Past results are not predictive of results in future periods. It is not possible to invest directly in an index, which is unmanaged. The value of investments and income from them can go down as well as up and you may lose some or all of your initial investment. This information is not intended to provide investment, tax or other advice, or to be a solicitation to buy or sell any securities.
Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. All information is as at the date indicated unless otherwise stated. Some information may have been obtained from third parties, and as such the reliability of that information is not guaranteed.
Capital Group manages equity assets through three investment groups. These groups make investment and proxy voting decisions independently. Fixed income investment professionals provide fixed income research and investment management across the Capital organization; however, for securities with equity characteristics, they act solely on behalf of one of the three equity investment groups.