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Mandy Zuo

Frank Chen

China needs to act to avoid a fate similar to Japan’s as the country has recorded hefty declines in its GDP deflator as well as the producer price index (PPI), a former governor of Japan’s central bank said at Shanghai’s Bund Summit on Friday.
The warning came amid heated discussions among academics and policy experts over the potential “Japanification” of China, as a slump in the property market, deflationary pressure and demographic challenges have all combined to evoke the memory of the lost decades suffered by its East Asian neighbour.
Haruhiko Kuroda, a former governor of the Bank of Japan, discussed the deflation that plagued his country between 1998 and 2012, and named wage stagnation as the most pressing challenge of that time.
During his tenure from 2013 to 2023, Japan introduced rounds of quantitative easing and structural reforms, eventually escaping a deflationary spiral.
However, he said China’s deflation was “not as serious as Japan’s”, and reiterated the importance of maintaining wage increases.
China’s PPI has been on the downswing since October 2022, while the consumer price index (CPI), a key gauge of inflation, fell into contractionary territory between October 2023 and January.


While no longer contracting, CPI remains weak with year-on-year growth of 0.5 per cent reported in July. The National Bureau of Statistics is due to release August’s figure on Monday.
Speaking at the same panel, Yi Gang, former governor of the People’s Bank of China, also underscored the urgent need to fight falling prices.
“I think right now we should focus on fighting deflationary pressure,” said Yi, who ended his five-year tenure in July 2023.
“The immediate task is to turn the GDP deflator positive in the short term. I know there are doubts and some people don’t agree, but we must try our best.”
While recovery is under way for the world’s second-largest economy, it remains relatively “small”, he said.
Beijing has acknowledged the country’s weak domestic demand – it has put forward numerous initiatives to boost spending, including subsidies and a trade-in scheme – but has denied deflation presents a danger.


Yi said a broad range of price indicators had been in negative territory for several quarters, including the PPI which had dropped for 22 consecutive months as of July.
He expressed hope that the index would stabilise to zero by year’s end, and that the GDP deflator would return to “slightly positive”.
Chinese consumers have shown a diminished willingness to spend amid the overall economic slowdown. But July’s increase was enough to beat expectations, mainly thanks to changes in food prices.
To resolve this issue, Yi urged the government to enact measures to address unemployment, pursue a proactive fiscal policy and a supportive monetary policy.
“The key is how to improve domestic demand, successfully tackle the real estate market as well as the local government debt problem, and increase the confidence of society,” he said.


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Former central bank governors have raised the alarm over deflation and slowdown, both of which were symptoms in Japan’s ‘lost decades’.
