Striking parallels between China today and Japan in the late 1980s suggest China faces the risk of a Japan-style downturn. China’s top policymakers seem aware of the potential pitfalls, which explains their gradualism in implementing reforms. In our baseline scenario, they will succeed in engineering a soft landing. The risk of a sharp correction in China’s asset markets when the economy slows down should not be overlooked, but it should not necessarily lead to a prolonged and deep economic recession as in Japan during the 1990s....
