Can China learn from Japan's 'lost decade' housing bubble?

China’s housing market showing signs of bubble similar to that seen in Japan in 1980s, says Asian Development Bank Institute dean and CEO Naoyuki Yoshino

China’s loose policy following 2008 global financial crisis laid foundations for current housing bubble, with US-China trade war adding to concerns

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The average price of a home in Beijing has soared from around 380 yuan (US$55) per square feet in the early 2000s to the current level of well above 5,610 yuan (US$813) per square foot, according to property data provider creprice.cn. Photo: Bloomberg

Published: 6:00am, 28 May 2019Updated: 1:40pm, 17 Dec 2019

China must exercise extreme caution in handling its housing sector because it is showing signs similar to those witnessed during Japan’s bubble period of the 1980s that contributed to the collapse of Japanese asset prices and its subsequent “lost decades” of weak economic growth and deflation, a Japanese financial system expert warned.

The parallels between China’s current landscape and Japan’s three decades ago are readily apparent, stemming from a loose monetary policy that laid the foundation for the expansion of a housing bubble, said Naoyuki Yoshino, dean and CEO of the Asian Development Bank Institute.

China flooded its economy with credit in response to the 2008 global financial crisis, fuelling rapid growth in mortgages, real estate borrowings and investments over the past decade.

In the same vein, the Japanese government’s relaxed monetary policy in the 1980s triggered an economic bubble that eventually burst and sank the economy into a recession that lasted almost 25 years, with the Bank of Japan continuing to still keep interest rates at or below zero per cent to this day in an attempt to spur inflation.

The Japanese government’s relaxed monetary policy in the 1980s triggered an economic bubble that eventually burst and sank the economy into a recession that lasted almost 25 years. Photo: Bloomberg

Japan’s experience could serve as a lesson on how to avoid a housing market collapse that would be especially detrimental to China’s financial sector and real economy, according to Yoshino.

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