Asia Essentials - 08 Jun 2026

Research evidence excerpt

Asia Essentials - 08 Jun 2026

their lowest

valuations over the past decade.

There are notable parallels between China today and 1990s Japan: an asset bubble burst, soft consumption, persistently low

inflation or deflation, and an aging population. However, one key difference stands out: the manufacturing sector.

• Japan: After the asset bubble burst in the 1990s, its manufacturing sector also fell. In terms of global manufacturing value

added, Japan's share fell from 23% in 1995 to 11% in 2010.

• China: Despite the property downturn since 2021, its manufacturing sector has accelerated. China’s share of global

manufacturing value added reached 28% in 2024 and could climb further in the years ahead.

Due to the diverging paths in manufacturing:

• Japan’s “lost decades” saw a balance-sheet recession, with both households and firms focused on paying down debt.

• By comparison, China's economy has shown a 2-speed growth. Households and local governments are undergoing a

balance-sheet recession, while corporate China continues to expand its balance sheets on the manufacturing boom.

2-speed growth is a policy choice, not an inevitable outcome.

It arises because the export boom has reduced the need to support consumption (Why Beijing Does Just Enough to Achieve

Its Growth Target). One might instead attribute weak consumption to structural headwinds such as an aging population and an

inadequate social safety net. However, these structural factors evolve only gradually, so they struggle to explain why retail sales

growth has fallen sharply from 8% in 2019 to 2% so far this year.

China’s consumption is the anti-AI trade.

If the AI-led export boom persists, consumption will remain subdued as policymakers continue to ride the export wave.