A tale of two countries

March 26, 2026 - 08:16

Economists Kenneth Rogoff and Yuanchen Yang have presented a compelling analysis drawing parallels between China's current real estate sector adjustment and Japan's prolonged downturn in the 1990s. Their examination highlights a critical period of rebalancing within the Chinese economy as it grapples with a significant property market correction.

The research underscores similar pre-crisis factors, including excessive debt accumulation, demographic pressures, and overvaluation in housing markets. Both nations experienced decades of booming property investment that eventually reached unsustainable levels, leading to a necessary, yet painful, period of deleveraging and price discovery.

However, the analysis also points to key distinctions that may shape China's path. China's authorities possess greater centralized control over the financial system and have intervened more directly to manage the slowdown, aiming to prevent a systemic crisis. Furthermore, China's development stage and income level differ from Japan's in the 1990s, offering alternative avenues for economic growth.

While the shadow of Japan's "lost decade" looms large over any major property downturn, Rogoff and Yang suggest the outcome is not predetermined. The ultimate impact on China's long-term economic trajectory will hinge on policy effectiveness and the success of efforts to shift growth towards domestic consumption and advanced manufacturing, reducing the economy's historic reliance on real estate investment.