Roughly three decades ago, rising Japan was a national obsession in the U.S. Business gurus like Peter Drucker were declaring Japan “the most extraordinary success story in all economic history,” and the U.S. was awash in fancy Japanese cars and newfangled electronics. Americans were at once frightened and wowed by the new global power and began flooding Japan with hotheaded investments, only to kiss their money goodbye when the country’s speculative bubble burst. Today’s obsession with China is eerily similar. And the parallels to Japanomania raise questions about whether it all might end in tears. The answer for investors depends on their time horizon. China is different from Japan. For one thing, its population is 10 times Japan’s. Its demographics are better. And whereas Japan’s growth tumbled after less than a decade of hype, China So why would Americans want to invest in China? First off, it all depends on how long you’re willing to stay in the game. Short-term investing in China is risky. But few economists would dispute that in the long term, China’s overall trajectory is up. The regime is savvy enough to realize that to keep up its growth, it has to move away from cranking out cheap stuff sold in Walmart and improve the lot of its consumers. The Communist Party’s latest five-year plan pledges to increase social services and workers’ pay. And this is an autocracy that won’t likely meet the same fate as those in the Middle East; Chinese youth are more intent on improving their lives through economic growth than abrupt political change, which mitigates political risk, says Edmund Harriss, manager of Guinness Atkinson’s China & Hong Kong fund, based in London. Inflation is a problem, but the government is already tightening the spigot and has tackled far worse before. And China — unlike Japan, whose economic collapse came on the heels of a sharp rise in the value of its currency — is letting the yuan appreciate slowly, which keeps its cheap exports chugging while it works to rebalance its economy and put more spending money in the pockets of its people.
