No, China isn't "Japanizing"

Fears of "Japanization" of China are resurfacing in earnest. At this point it's a bit stale, because the counterarguments are increasingly well-established. And more to the point, the recent stock market woes are an indication that China is decidedly not "Japanizing."

Lost amidst the hysteria over the stock market is that it is actually proof that Beijing is serious about reform. The hard landing in secondary industry - only 1.2 percent growth in 3Q - is an indication that it truly is scaling back on waste, with high-unemployment rust belts already coming back in a way not seen since the late 1990s, as the worst of the state-owned enterprises, like these Manchurian coal mines, are systematically dismantled. Of course the central government wants to ease the pain and ensure the stock market doesn't melt down altogether on fears the hard landing isn't contained: to Western market fundamentalists, this is cheating, but it's necessary only because Beijing is for real on restructuring and reform.

Xi Jinping is committed to overhauling the SOE sector; if he doesn't act, it will be because of bureaucratic inertia and not because he's content to keep zombie companies running just like they have for years. Some bankruptcies appear inevitable this year and next. But the preferred methodology of consolidations and mergers will be more common for the bloated SOEs. Again, to Western market fundamentalists, this amounts to cheating; but even advanced economies are now in "the age of the torporation", meaning amalgamation may in fact be the best way to cut the inefficiencies of big firms.

And it's totally incorrect to say that growth in tertiary industry, i.e. services and high-tech, hasn't been promoted, because without these new drivers, things would look a lot worse already.

Finally, as I have previously commented, it's still too early to make direct comparisons between 1990s Japan and contemporary China, because the latter is still much poorer, i.e. its internal market is not nearly as saturated. As hard as it may be to believe, much of China still needs basic infrastructure investments. And even with the deflationary threat of a flatlining population, in China's case the existing population is still much too poor to not generate a large demand for additional goods and services.

So in conclusion, all these criticisms of China and Xi Jinping's leadership serve the purpose of confirming that they're generally on the right track.