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Tags: Steve Forbes | China | Japan | economy

Steve Forbes: China Isn't Heading the Way of Japan

Steve Forbes: China Isn't Heading the Way of Japan

By    |   Thursday, 20 August 2015 12:13 PM EDT

Japan's economy took the world by fire in the 1980s, creating worry in the United States that the Asian nation might usurp our role as the world's leading economy. But the last 25 years have been desultory for Japan.

Now that China's economy is hitting some turbulence after soaring for the last 25 years, it's natural to ask "is China headed for a Japan-like era of economic stagnation?," as Steve Forbes, editor-in-chief of Forbes Media, puts it on Forbes.com.

His answer is quite ironic, given communism's usually damaging effect on economies. "Not likely, and the reason is the survival of the Communist regime," Forbes says.

"A prolonged slowdown would be politically catastrophic for the Party. The economic boom that has existed since 1978 is what gives the regime its legitimacy."

China's economic slowdown will actually force positive reforms, Forbes says. "These will include major tax cuts and . . . liberalizing capital markets."

China's economy officially grew 7 percent in the second quarter. But economists say that figure is vastly overstated and estimate true growth at 3 to 5 percent.

Meanwhile, you can add London Telegraph columnist Liam Halligan to the list of experts who see China's devaluation of the yuan last week as a sign of its entry into the global currency war.

The yuan has slid 3 percent since the government's move last Tuesday. The dollar traded at 6.3960 yuan Wednesday, up from 6.2086 yuan a week ago Monday.

"Beijing, while it has an eye on the IMF’s decision on SDRs, is firing back a currency war salvo," Halligan writes. He was referring to China freeing its currency market to convince the IMF to include the yuan in its special drawing right unit, which would help the yuan become a reserve currency.

But Halligan sees trouble for the Asian titan ahead.

"China has massively over-invested, the banking sector is full of non-performing loans, stock valuations remain bloated and many companies have borrowed heavily overseas," he notes. "If the Chinese central bank is concerned enough to yank down the currency, making those foreign loans even bigger, maybe it is time for us to worry."

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StreetTalk
Japan's economy took the world by fire in the 1980s, creating worry in the United States that the Asian nation might usurp our role as the world's leading economy. But the last 25 years have been desultory for Japan.
Steve Forbes, China, Japan, economy
381
2015-13-20
Thursday, 20 August 2015 12:13 PM
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