Japan’s deflation a lesson for ChinaBy Takatoshi ItoEconomic news from China has triggered the same helpless, sinking feeling that gripped me when Japan’s property bubble collapsed from 1991 to 1992. After the property bubble burst, that rate sank to 0 to 2 percent. Foreign portfolio investors are pulling out of Chinese capital markets, and inward foreign direct investment is declining fast. If the property bubble bursts, China’s banks and government must avoid the mistakes Japan made three decades ago. Chinese banks must not succumb to the “evergreening” temptation and extend new loans to insolvent “zombie” borrowers so that they appear healthy.
