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Asia Markets
Dec. 30, 2009, 2:55 a.m. EST · Recommend (3) · Post:
By Chris Oliver, MarketWatch
HONG KONG (MarketWatch) -- As Japan marks the 20th anniversary of its stock-market peak this week, China appears to have learned key lessons from its neighbor's subsequent economic downturn, according to an expert on the Japanese bubble.
Nomura Institute of Research's Richard Koo says Beijing policymakers deserve high marks for their all-in effort to support the economy through a period of global balance-sheet deflation.
Specifically, Koo cites Beijing's decision to unleash massive stimulus spending and a flood of new lending from state-controlled banks.
"They realized that if you put in proper fiscal stimulus from the very beginning and keep it up through the period of adjustment, then it is possible to keep the gross domestic product from collapsing, even with the bursting of a bubble," Tokyo-based Koo said in an interview with MarketWatch.
China's actions stand in contrast to the Japanese moves in the 1990s, when the government there failed to step up spending at a time when the private sector was de-leveraging, said Koo, author of the 2008 book "The Holy Grail of Macro Economics: Lessons from Japan's Great Recession."
The actions of Beijing's policymakers were among the boldest of all major economies in responding to the global financial crisis, unveiling late last year a 4 trillion yuan ($585 billion) stimulus plan -- the equivalent to 13.5% of annual GDP -- that would run over two years.
Lending was similarly expanded, with Bank of America Merrill Lynch estimating Chinese banks extended about 9.5 trillion yuan in new loans this year. Loan growth in 2010 should cool slightly to around 7.5 trillion yuan, according to Merrill estimates.
"They are the only ones who know what they are doing," Koo said of the Chinese. "In the U.K. and U.S., everybody is arguing over fiscal stimulus [versus] monetary stimulus, but the Chinese are going straight to fiscal stimulus, supplemented by monetary stimulus."
The measures contrast with Japan's response to a collapse in real-estate, stocks and other economic sectors at the dawn of the 1990s.
Koo said that at first, Tokyo did too little, and when its credit markets froze up some years later, policy makers reacted with a misplaced emphasis upon monetary policy in the form of low interest rates in an effort to reboot lending.
The approach failed, he said, because Japanese firms had by then become more concerned about cutting debt, causing a "debt-rejection syndrome."
"When borrowers are not borrowing money because they feel over-leveraged, there is nothing a central bank can do," Koo said.
Koo's remarks came as Japan was marking the 20th anniversary of its stock-market peak.
On Dec. 29, 1989 -- the last trading day of the year -- Tokyo's benchmark Nikkei 225 Average hit an all-time high above 38,915, with news accounts at the time predicting Japan's continued global economic dominance. Read This Week in Japan column looking back at the Nikkei bubble bursting.
On Wednesday, exactly two decades and a day later, the Nikkei had closed morning trade at 10.610.6, down 0.3% from its Tuesday close, but also at a mere 27% of its value at the 1989 peak.
- Qwerty2008 | 12:41 a.m. Today12:41 a.m. Dec. 30, 2009
It looks as if shoppers materialized in the final weeks of the month, buying holiday gifts and signaling a turnaround in the sluggish consumer environment. But will there be a post-holiday hangover?
12:04 p.m. Dec. 29, 2009 | Comments: 29
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