China unlikely to go down the path of ‘Japanification’: panellists
Zhao Yifan
AS CHINA struggles with deflation, an ageing population, rising debt levels and an over-leveraged real estate sector, there have been comparisons with Japan’s so-called “lost decade” in the 1990s.
But panellists at a forum on Wednesday (Nov 8) said this does not mean that China will experience the sort of economic decline as Japan did, given the vast differences between the two countries.
Benjamin Deng, chief investment officer of Ping An Group – China’s largest insurer by market capitalisation – said China has a much bigger economy and is more diverse in terms of composition than Japan.
“China’s policy execution is also more efficient and effective,” he said at a session to discuss the re-evaluation of the Chinese economy on the first day of the Bloomberg New Economy Forum.
Gary Rieschel, founding managing partner of China-based venture capital firm Qiming Venture Partners, pointed out that China has had an entrepreneurial drive for the last 20 years, while Japan, by comparison, is a less innovative society.
He noted China is strong in areas such as artificial intelligence, biotech, cell therapies and gene therapies, and these are expected to see robust capital investment going forward.
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Rieschel added that while investment from the US into China has declined over the years, this is not a unique situation given that US investments as a whole have fallen too.
“With their combined venture capital making up 83 per cent of the global value, (the US and China) are still the only two with complete investment ecosystems from sourcing capital, funding entrepreneurs, to growing companies and exiting. Their controlling positions are not going to change any time soon,” he said.
Fred Hu, founder and chief executive of Chinese investment firm Primavera Capital, said the correction in China’s property sector has more similarities with Japan’s real estate problems in the 1990s than with the US’ sub-prime mortgage crisis in 2007 and 2008.
Unlike the US crisis that Hu described as “abrupt, full-blown and violent”, he noted that China’s property market collapse is a “slow-motion crisis” that will take a few years to resolve.
Overall, the panellists said the Chinese government was not deploying enough measures to counter the country’s economic slowdown.
Both Deng and Hu think the central bank will cut interest rates further as the current rate “is lower, but not low enough” given the scale of inflation today.
On the fiscal front, while the municipal governments are grappling with debt problems, they said the national government still has a very strong fiscal position and has the ability to offer more stimulus.
Hu sees more potential in structural changes to rekindle the positive sentiment among the country’s entrepreneurs. He said the sense of insecurity among Chinese entrepreneurs is at its highest he has observed since the 1970s, due to the ongoing uncertainty of whether the current leadership is committed to market reforms.
“(What’s most needed) is legal reform to truly establish the rule of law to protect property rights and protect entrepreneurs from arbitrary and political interference,” he said.
Rieschel, meanwhile, said a major problem for China’s economy is the fact that more than 70 per cent of consumer savings are locked up in the real estate market. On the other hand, the stock market has essentially remained flat for the last 15 years, he said.
To truly encourage capital flows and consumption spending, “the government needs to make the capital market another sustainable long-term store of value, so people have the confidence to move their money away from the property market,” he said.
Sino-US tensions
Another panellist, Jennifer Welch, chief geo-economics analyst at Bloomberg Economics, said she expects Washington’s stance on containing China’s technology development to be tightened further.
She said the lines are blurred when it comes to technology being used for military or civilian use, such as technologies in advanced semiconductors that are important for both military application and commercial purposes.
Welch said that as the US becomes more concerned with the importance of technology leadership and the impact it can have on its industrial capacity and workforce, “we are likely to see the continuous expansion of both the metaphorical fence (the scale of restriction) and the metaphorical yard (the scope of restriction)”.
Ahead of a likely face-to-face meeting between US President Joe Biden and Chinese President Xi Jinping in San Francisco next week, the panellists said they did not think the meeting would improve relations significantly.
Welch said she has “low expectations on major deliverables” for the meeting, with the focus to be on stabilising the bilateral relationship.
Hu’s hope for the meeting would be for both sides to “dial down the tension” and be “more pragmatic in focusing on areas where the two countries have shared interests”.
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