The rising risk of China turning Japanese

The world today is witnessing an unsettling sense of economic deja vu. Beneath the gleaming skyline of Shanghai and the global dominance of China’s electric vehicle industry, the Chinese economy is on a precipice, similar to the one that dashed Japan’s economic miracle three decades ago.

The parallels are increasingly striking. If Japan’s story was a tragedy of an Asian economic giant undone by its own excesses, then China is writing an eerily similar drama, albeit with far higher stakes for global economic stability.To understand why China must tread carefully, it is instructive to revisit the anatomy of Japan’s economic crisis as seen by major thinkers who have examined the collapse from various angles.

Nobel laureate and commentator Paul Krugman, through his theory of the “liquidity trap,” described Japan as a patient whose economic nervous system had gone numb.

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