One of the favourite comparisons of those who predict economic failure in China is to make analogies with the situation of Japan in the 1990s. The news that Japan's consumer price index has fallen for the 13th consecutive month in the year to December, by 1.3%, shows the falsity of this analogy.
Japan in the 1990s, after the bursting of the bubble economy, is one of the classic illustrations of Irving Fisher's analysis of economic depression as due to deflation/debt. Fisher noted how under conditions of deflation, which has existed repeatedly in Japan since the 1990s, the real value of debt increases - trapping the economy in depression. The latest figures illustrate that Japan remains in that deflationary situation.
In China, on the contrary, inflation remains the risk. Deflation did occur in China for a short period during the early part of 2009, under the impact of the world financial crisis, but was rapidly overcome. China's CPI rose by 1.9% in December - a higher than expected level and with an accelerating trend.
This difference clearly illustrates the differences between China and Japan. There are more underlying causes which create this situation - Japan is one of the most closed major economies in the world while China is one of the most open, investment in Japan has persistently fallen whereas in China it has risen etc - but the radical difference in price trends between inflationary China and deflationary Japan by itself shows the falsity of the entire attempt to make analogies between the present situation in China and that of Japan in the 1990s.