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- March 1, 2013: Volume 5, Number 3

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Is China Following Japan?: Japan’s Recent Economic History Provides Lessons for China

by Jack Rodman

At the end of 1989, Japan’s bubble economy burst and its economic miracle came to an abrupt end. The Nikkei exchange fell from nearly 40,000 to around 11,000 today. Over the course of 20 years, what appeared to be “unstoppable” economic growth proved to be anything but.

Today, China in some ways appears to be closer to following Japan than to sustaining its own economic miracle. China’s Shanghai Index (stocks) has fallen from a high of 7,000 in 2007 to a low of 2,000 for the past few years, and Chinese domestic investors have little confidence in their domestic stock market. The Japanese bubble, and its aftermath, was the result of a series of domestic financial and economic imbalances, many of which China faces today — to varying, if not greater, degrees:

•            High growth rates fuelled by credit-backed investment and artificially low interest rates

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