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China's economic struggles and the lessons of the 'three Japans'

Is China turning Japanese? Official attempts to prop up the Chinese stock market and the recent run of poor economic data have had commentators grasping for precedents from the Japanese experience. The problem is that China's dizzying ascent has been so fast, complex and uneven that no single comparison can do it justice. Today's China resembles a blurry overlay of at least three different phases of Japan's historical trajectory, each of which contains its own set of challenges for the rest of the world.

     The most topical parallel is with the bursting of Japan's bubble economy in 1990 and the deflationary aftermath. Rather than tackle the root causes, the Japanese authorities engaged in several rounds of "price-keeping operations" (so dubbed in imitation of the United Nations' peacekeeping operations) in which institutional investors were "encouraged" to support the stock market at critical levels. Needless to say, it did not work and probably helped to extend one of the longest bear markets in history.

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