China must act to avoid crisis, former Japanese central banker warns

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

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Yi Gang, former governor of the People’s Bank of China, is among the voices cautioning China over its deflation and low consumer confidence. Photo: Bloomberg

Mandy Zuoin ShanghaiandFrank Chenin Shanghai

Published: 10:00pm, 6 Sep 2024Updated: 10:58pm, 6 Sep 2024

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.