Article: Juscelino Colares, the Schott-van den Eynden Professor of Law, describes similarities between China’s property bust and Japan’s of early 1990s

China’s property bubble bust is beginning to look more and more like Japan’s in the early 1990s, which pushed the country into three decades of stagnation, according to Juscelino F. Colares, professor of international business law at Case Western Reserve University.

“Growth-oriented strategies, a bias against domestic consumption, cheap money, and central and provincial government loan guarantees and bailouts created the colossal real estate bubble we see in China today,” Colares told International Business Times.

“Some believe that as prices come down—and they have by about 15 percent, with more to come—things will normalize,” he said, adding, “But falling birth rates and the slowdown in the decades-old migration from rural to urban centers have made the Chinese real estate bubble look more like Japan’s. That nation’s bubble-bursting effects linger to this day.”

His comments follow an IMF report released last week, which downgraded China’s growth prospects for the next four years from the current level of 4.6% to 3.5%.

Professor Colares believes that several factors point to China’s sharing a similar fate to that of post-bubble Japan, like slow recovery from COVID and the ongoing decoupling in manufacturing (a result of Western reaction to China’s belligerence on Taiwan and in the Indo-Pacific).

“The Japanese response was a large increase in government spending (much of which in infrastructure) and central bank policies designed to signal inflation, to jolt economic actors from a deflationary trap, he told IBT, providing further insight into the policy responses of Beijing to deal with the problem. “But for inflation-signaling, Chinese central and provincial governments have gone the way of infrastructure investment, which some say is already overbuilt,” he added. “Thus, further investment might only exacerbate the problem.”

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