As I discovered recently, a person’s first trip to Tokyo can be an interesting experience. Its high standard of living, clean streets, orderly public life and inexpensive, dependable infrastructure are likely to impress a first-time visitor.
However, puzzling as it might be, Japan’s GDP has not grown much since the 1990s despite clear evidence of a thriving economy. In US dollar terms, Japan’s GDP was higher in 1993 than it was in 2024. There are a few reasons for this disconnect. Some of it has to do with the shortcomings of GDP as a measurement and currency fluctuations, but the story does not change drastically when you measure Japan’s GDP in yen, at least up to 2022.
Japan is just a few stages ahead of China, and the two mirror each other in many ways. They share concerns about growing debt levels, demographic decline, ageing society, inflated property prices, dependence on external balances, unproductive investment-led growth and deflation.
However, Japan’s trajectory shows that disappointing GDP growth does not necessarily preclude modernisation. Its “lost decades” were marked by some of the world’s highest living standards, longest lifespans and cutting-edge industries.
When commentators discuss China’s current challenges, “Japanification” is usually invoked as a warning. Perhaps this phenomenon should be read instead as a model. The real challenge for China is not how to sidestep Japan’s path, but what to learn from it.
How did Japan get to this point? The post-war economic miracle Japan experienced was the result of market-conforming state planning, which suppressed household income and consumption to make way for higher national savings and investment to fund the state’s industrial policy. This development model came to be known as the “East Asian developmental state”.
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