Many observers assume that China is on a path to become the next Japan — a major economy mired in a multiyear deflationary funk that deflates its global clout. And it’s certainly true that the way that Beijing has been downplaying its debt problems is eerily reminiscent of Tokyo’s public relations strategy from the 1990s.
But take a closer look at China’s situation, and you’ll realize a better analogy is South Korea. China’s expanding effort to pile debt risks on individual investors is straight out of Seoul’s playbook.
South Korea’s economy crashed in 1997 under the weight of debts compiled by the country’s family-owned conglomerates. The government’s strategy for dealing with the fallout consisted of shifting the debt burden to consumers. With a blizzard of tax incentives and savvy PR, Korea shrouded the idea of amassing household debt to boost growth in patriotic terms.
Read Full Article HERE