Odd Lots Richard Koo on China's Risk of 'Japanification'
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Jul 10, 2023 Richard Koo, chief economist at Nomura Research Institute and author on balance sheet recessions, discusses the looming threat of 'Japanification' in China due to its immense debt levels and sluggish growth post-COVID. He highlights how Chinese companies are increasingly hesitant to borrow, raising concerns about future investments. Koo sheds light on the need for targeted fiscal stimulus and compares China’s dire circumstances to Japan's past economic struggles, emphasizing strategic reforms to avert a deflationary crisis.
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China's Balance Sheet Recession Risk
- China exhibits similarities to Japan's 1990s balance sheet recession.
- These include a real estate bubble burst and debt repayment hindering growth.
China's Awareness of Balance Sheet Recession
- Unlike Japan in the 1990s, China is aware of balance sheet recessions.
- This awareness may lead to quicker implementation of fiscal stimulus.
Koo's Influence on US Policy
- Richard Koo's book influenced Ben Bernanke's response to the 2008 financial crisis.
- Bernanke emphasized fiscal stimulus, unlike European policymakers, leading to a faster US recovery.
