Experts see similarities to 1980s Japan Filmgoers lucky enough to have scored tickets to the full-house premiere of Bubble Fiction: Boom or Bust at the Hong Kong International Film Festival last month may have enjoyed more than the standard Japanese time-travel comedy. According to some leading economists, they were treated to a cautionary tale about where China might be headed. Baba Yasuo's comedy details the efforts of a young Japanese bar hostess who travels back to 1990 in an effort to save both her mother (trapped in a time-machine related mishap, naturally) and the country's economy, which is about to sink into a decade of stagnation. In the process, it recounts with a little historical licence how the booming Japanese economy of the late 1980s gave way to the prolonged downturn the following decade. From former US treasury secretary Lawrence Summers to banking giant Goldman Sachs to the Chinese Academy of Social Sciences (Cass), economists have recently been taking a second look at Japan's experiences nearly two decades ago for clues on what could happen to the mainland if its own boom turns to bust. For investors rushing to get piece of the action in the surging mainland, the similarities between the two bull runs offer a sobering note of caution, hinting at the potential of grave losses in China plays. On the other hand, as some of the same economists note, the differences between the two markets are probably substantial enough to prevent the kind of collapse that turned high-fliers into dead ducks. The parallels between Japan then and China today start with twin bubbles in the stock market and real estate. In seven years during the 1980s, the Nikkei 225 index more than quadrupled. At the same time, in Japan's six largest cities, the price of land more than tripled. Meanwhile, a sky-rocketing trade surplus led to calls from the United States and other large trading partners for a rapid increase in the yen's value - a debate ominously reminiscent of today's wrangling over the yuan. Easy credit led to the same concerns that now surround the mainland's banking system. By early 1990, the good times came to an end in Japan. Within two years, the Nikkei dropped by half, and it still has not come close to matching its January 1990 peak. By the end of the 1990s, the price of land was only about a third of where it stood when the decade began. For economists who have introduced the analogy between China and Japan, the comparison isn't purely academic. Japan's experience in the late 1980s - and the decade of economic stagnation that followed - potentially offers several lessons about how policymakers shouldn't go about addressing an economic bubble. But what those lessons are, exactly, depends on whom you ask. In recent articles in the Financial Times and the Los Angeles Times, Dr Summers - now a professor at Harvard University - wrote that for the mainland, 'now, when the sun is shining, is the time to fix the policy roof'. In citing Japan's lessons, Professor Summers noted its failures to stimulate domestic demand or clamp down on dodgy bank loans. The Cass report, released in January, argued that Japan's experience suggests the central government should keep interest rates high and continue its efforts to cool the real estate market. But perhaps the most controversial question is whether Japan's hard landing should be attributed to the swift revaluation of the yen that occurred after the 1985 Plaza Accord. That agreement - which came as Japan was under political pressure, from the United States and other countries, reminiscent of the criticism China faces today - ultimately resulted in the yen's value against the dollar doubling in less than two years. Critics of the appreciation contend that by raising the price of its exports, the Plaza Accord weakened demand for Japanese goods. At the same time, they also pin blame on Japan's decision to lower interest rates to lessen the impact of a rising yen - a move that helped fuel the feverish rise in property and stock prices. The Cass report cites the yen's appreciation as a cause of the Japanese economy's downfall, and many mainland analysts have been quick to cite Japan as an example of the danger of a swift yuan revaluation. Professor Summers, on the other hand, is sceptical of the view that Japan's mistake lay in the yen's rise, arguing that mainland officials should allow an 'inevitable' currency appreciation. To be sure, Japan at the peak of its bull run, and China now are two different beasts. As many who question this school of similarities note, by the 1980s, Japan was already among the world's wealthier countries - accounting for inflation, its gross domestic product per capita in 1988 was more than 21/2 times what China's is today, even after adjusting for purchasing power. Likewise, even at the peak of Japan's expansion, its overall economic growth was considerably slower than the mainland's average of about 10 per cent over the past decade. Moreover, while Japan's real estate boom roughly coincided with the bull run in stock prices, the mainland has seen its bubbles staggered, with the property boom beginning well before the Shanghai or Shenzhen markets experienced their heady growth of the past year. Thomas Deng, Goldman Sachs' head of China research and the co-author of a research report comparing China and Japan, notes other differences. China's economy is far more integrated with the rest of the world, Mr Deng and his colleagues argued in their report, with foreign trade equal to about 60 per cent of the country's GDP, compared to less than 30 per cent in Japan in the 1980s. While a globalised China might suffer in the case of a worldwide slowdown, the mainland economy may face a lower risk of suffering a downturn as deep and prolonged as Japan's because it is not so heavily reliant on domestic demand. In addition, despite criticism of a lack of transparency in the mainland, Mr Deng notes that Japanese corporate practices during its bubble were significantly worse. 'In China, it seems to me, corporate governance is more disciplined,' Mr Deng says. This is not the first time China's economic boom has been compared with Japan's. As Mr Deng notes, only three years ago his team put out another report - comparing the mainland's growth to Japan's in the 1960s and 1970s, when it joined the club of developed nations. That comparison may be more hopeful for Chinese officials, suggesting that the real estate and stock market bubbles have support in the strength of the overall economy. Kwan Chi-hung, a senior fellow with the Nomura Institute of Capital Market Research says China's rapid economic growth today means its bubbles may not burst quite as dramatically as Japan's did. 'In terms of direction, I see many similarities,' said Dr Kwan. 'In terms of degree of adjustment, it may be milder.'