compare china's credit and real estate boom of the 2010s with the japanese asset price bubble...

compare china's credit and real estate boom of the 2010s with the japanese asset price bubble of the 1980s ? what is similar and what is different ?

Expert Solution

Chinese Real Estate Boom

It was a real estate bubble in residential and commercial real estate in China. It caused the average housing prices in the country to triple from 2005 to 2009, due to government policies and cultural attitudes .

Japan Asset Price Bubble of 1980s

It was an economic bubble from 1986 to 1991 where real estate and stock market prices were inflated greatly .

Similarities

Both economy had growth strategy of export orientation and were capital intensive.
Both show a case of ' confidence trap' where government policy stance was that they can achieve the optimal mix of market liberalisation and repression, while believing that their political economic system is distinguished from others.
Government decision to adopt expansionary monetary policy and aggressive approach were influenced by exogenous shocks.

Differences

The Chinese case is influenced by approach of ' too secure to fail' which promoted rent seeking attitude, thus aggravating hidden systemic risks.
Chinese case is different as it needed to liberalise it's capital account with greater and more secured macroprudential regulatory governance as the global foreign exchange markets had changed drastically from the period of 1980s.

Rahul Sunny answered 1 hour ago

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