China Faces Tougher Road than Japan in Overcoming Economic Crisis

Japan recently emerged from decades of economic malaise, offering a preview of what could happen with China's looming economic crisis. However, China faces more challenges replicating Japan's eventual success.

Japan was able to revive its economy through aggressive fiscal stimulus, negative interest rates from its central bank, and a weaker currency that boosted exports. China is unlikely to pursue fiscal stimulus and already faces trade barriers.

China faces a shrinking workforce and slowing growth, similar to Japan in the 1990s. However, China starts from a lower level of development, making the challenges even harder.

Japan ultimately benefited from cooperative free trade relationships that enabled its export rebound. But China faces an adversarial trade environment that could constrain its exports.

For China, the crucial difference may be that it lacks willing trade partners to buy its technology exports, even if it successfully transitions its economy to higher-value manufacturing.