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Sunday, June 29, 2025
What Can China Learn from Japan on Maintaining Social Stability during Economic Downturns?
Zhou Chao

Since the outbreak of the COVID-19 pandemic and the subsequent lifting of lockdown measures, China's economic momentum has remained weak, with a marked decline in consumer spending. Over the past year, uncertainty surrounding both the economic outlook and external factors has intensified. Among urban residents, issues such as the rising poverty among the middle class have drawn increasing attention. Unsurprisingly, the growing social anxiety fueled by the economic slowdown is becoming more palpable. In response, maintaining social stability has emerged as a central priority for Chinese authorities. Some industry analysts suggest that China could draw valuable lessons from Japan's experience since 1990 in navigating economic downturns while maintaining social stability.

The "Lost Decades (1989–2019)" of Japan's economy has become a well-known fact in the global economic narrative. According to the country's Ministry of Health, Labour and Welfare (MHLW)'s survey on wage structure, the average annual income of Japanese workers in 1990 was approximately JPY 4.63 million, but by 2018 it had decreased to just JPY 4.33 million. Nominal wages stagnated, and real income steadily declined in the face of rising prices. Meanwhile, the lifetime employment system gradually eroded, and the proportion of part-time employment continued to rise. By 2020, over half of Japanese women were employed in part-time jobs, with male participation exceeding 20%. In summary, since the 1990s, young people in Japan have faced lower starting salaries and more unstable career paths.

Both international analyses and Japan's own social consciousness suggest that the country has shifted from being known as a society of "ichioku sōchūryū" (a concept that emerged in the 1960s, where over 90% of the population identified as middle class, largely due to the lifetime employment system), to a polarized society characterized by growing inequality. The Japanese public is increasingly recognizing that the society is no longer egalitarian, and there are distinct winners and losers.

Industry experts have pointed out that since the 1990s, income levels across various social strata in Japan have generally declined, with the proportion of low-income households continuously rising, while the middle and high-income groups have continued to shrink. The relative poverty rate (the percentage of the population with income below half of the national median) has increased from about 10% in the 1980s to 16% in 2012, placing Japan among the highest in the OECD, and second-highest among the G7 nations. Against this backdrop, household consumption capacity has significantly declined. A direct indicator of changes in consumption structure is Engel's coefficient, i.e., the proportion of food expenditure relative to total household consumption. In the late 1980s, Japan's Engel's coefficient fell to around 20%, indicating that households then had relatively more "disposable income". However, as real incomes declined, this ratio began to rebound. By 2022, the Engel's coefficient had risen to 26.6%, meaning that over a quarter of household spending was allocated to food, with families increasingly squeezing their spending on non-essential items.

Industry experts also point out that with the increasing aging population, the number of individuals experiencing a reduction in income has also risen. From 1990 to 2020, Japan's pension replacement rate has generally been on a downward trend. According to data from the MHLW, the replacement rate for average wage-earning households was around 68% in 1986, but by 2019, it had dropped to 61.7%. During the 1990–2019 period, the theme of "economic stagnation" was consistently featured in numerous documentaries produced by Japan's NHK. In this challenging economic environment, Japan has seen the emergence of phenomena such as the "working poor" and the "NEET (Not in Education, Employment, or Training)" youth group. These issues have also contributed to the rise of social problems, including an increase in extreme violent crime.

However, analysts also note that despite the overall downward trend in economic data, Japan has maintained a certain degree of social structural stability. According to a survey by the Cabinet Office, from 1990 to 2024, the proportion of people who self-identify as "middle class" only declined slightly from 90% to 89%, a minimal change. When applying more detailed criteria, such as the long-term survey on "Social Inequality" conducted by Japan's International Social Survey Program (ISSP), which divides income into 10 levels and considers those in the 5 and 6 levels as "middle-income", the data reveals that in 1999, 2009, and 2019, the proportion of people in these categories was 27%, 31%, and 24%, respectively. While there has been a gradual shift downward among the "middle group" and an expansion of the low-income population, the overall social structure has not experienced a sharp collapse.

Industry experts suggest that the fundamental social landscape of Japan during the "Lost Decades" can be summarized as a society experiencing gradual decline but maintaining steady order. After 2010, travel to Japan gradually became a popular trend among Chinese tourists. Many Chinese visitors who traveled to Japan found that, despite the "Lost Decades", Japanese society had developed a unique sense of order, stability, and even livability. Although such experience was often superficial for many Chinese tourists, it nevertheless reflected the overall stability of Japanese society. Regarding Japan's social stability, many analyses have pointed out that the country's entry into the ranks of wealthy nations before the aging trend became pronounced and the economic downturn began was a key factor. In this regard, industry experts acknowledge this as one reason, but they also emphasize that Japan's distribution mechanisms, consumption, and business environment, as well as cultural and psychological factors, have played a significant role.

First of all, the Japanese government has made substantial investments in its social security system. Throughout the "Lost Decades", one data point remained notably stable, and that is the Gini coefficient. In a context of economic stagnation, wage stagnation, and downward social mobility, many might have expected a sharp widening of the income gap in Japan. Indeed, in terms of initial income distribution, Japan's Gini coefficient rose significantly from 0.43 in 1990 to 0.57 in 2021. However, what is striking is that the Gini coefficient after redistribution consistently remained around 0.38, showing virtually no change over the 30-year period.

Experts emphasize that this structural stability is not accidental. One of the main factors driving inequality in initial income distribution is the aging population, particularly the rise in elderly single-person households, which grew from 15% in 1990 to around 28% by 2020. Yet it is precisely the strong social redistribution mechanisms that have kept Japan's net Gini coefficient almost unchanged, increasing by only 0.02 over three decades. Among OECD countries, this represents one of the lowest rates of increase, and Japan's level of income inequality after redistribution remains lower than that of the United States and most European nations.

Industry experts note that the significant impact of redistribution in Japan is largely due to the country's substantial investment in its social security system. In 2023, Japan's social security expenditure accounted for 25.12% of its GDP, while China's stood at approximately 7.7%. However, in terms of contribution rates, China has already surpassed Japan. Japan's pension insurance contribution rate is 18.3%, whereas China's ranges between 22% and 24%. Japan's health insurance rate is 10%, while China's falls between 10.5% and 12%. This means that despite a lower overall share of social security spending in GDP, individuals and businesses in China are already bearing a heavier contribution burden.

Thanks to high investment levels, Japan's social insurance coverage mechanisms have become increasingly refined. For example, the long-term care insurance system launched in 2000 provides elder care services for citizens over 40. Since 2008, the government has shouldered a large share of medical expenses for those aged 75 and older. In 2009, Japan child allowances became universal, and by 2019 had fully implemented free preschool education. On the other hand, Japan has also introduced policy reforms with a redistributive focus, such as the 2004 launch of the "macroeconomic slide" in pension policy, which slows pension increases to a rate below inflation and wage growth, thereby helping ease fiscal pressure.

All of this has been supported by a steadily rising consumption tax. Since its introduction in 1997, Japan has gradually increased the consumption tax rate to 10%, with the majority of the revenue directed toward funding the social security system. Industry experts believe that since the 2000s, nearly all core social policies in Japan have revolved around redistribution.

In addition, "defensive consumption" became widespread, and affordable brands began to thrive. Experts point out that one of the most notable trends during the "Lost Decades" was the rise of value-oriented brands. Uniqlo, which opened its first store in 1984; MUJI, founded in 1980; Daiso, established in 1987; NITORI, known as the "IKEA of Japan", was founded in 1967; and Don Quijote, which opened its first store in 1989, all became not only domestic successes but also influential global brands.

These brands share common characteristics of pricing significantly below industry averages, a vast range of stock-keeping units (SKUs), and consistently reliable quality that embodies the logic of "high quality at low prices". Most of these brands expanded rapidly during Japan's deflationary period from 1995 to 2013, as economic pressure forced companies to continually optimize cost structures and improve value for money. At the same time, large-scale outsourcing to China and ASEAN countries provided critical support for this business model. These brands enabled Japanese households to maintain a sense of dignity in their daily lives through frugal, value-conscious spending, a trend often referred to as "defensive consumption". For example, average monthly household spending on clothing dropped from JPY 15,300 in 1990 to JPY 9,800 in 2020, a 36% decline.

Industry experts point out that, from a business logic perspective, there are clear differences between Japan's affordable brands and the current wave of low-cost consumption in China. The development of Japanese value brands has been deeply influenced by two management philosophies: Kaizen (continuous improvement) and JIT (Just-in-Time). Kaizen emphasizes the continuous refinement of processes and elimination of waste at all levels, from frontline workers to management. JIT focuses on minimal or zero inventory and pull-based production, enabling a rapid response to consumer demand. Cost control under these principles is not achieved by lowering quality or squeezing upstream suppliers, but rather through precise, highly efficient management practices aimed at maximizing productivity and minimizing waste.

Data shows that in December 2023, out of 560,000 commercial bills issued across Japan, only 129 involved irregular payments, with just 27 cases of complete non-payment. Throughout all of 2023, there were only 1,111 reported cases of delayed payments between businesses. In terms of employment, although the proportion of lifetime employment has gradually declined since the 1990s, nearly 48% of workers are still protected under the lifetime employment system as of today. Industry experts, therefore, believe that despite Japan's economy and society exhibiting traits of intense competition, Japanese companies have not broadly adopted a development path based solely on exploiting employees or suppliers for profit. Japanese firms continue to uphold business integrity toward both their commercial partners and their employees, a practice deeply rooted in the country's cultural and psychological foundations.

Industry experts point out that while many perceive Japanese culture as repressive, this sense of restraint stems from a deep-seated pressure of being watched or judged by others, in what is often referred to as a "shame-based culture". Japanese people are indeed highly averse to causing inconvenience to others and are deeply concerned with maintaining dignity. This sense of shame makes it difficult for politicians to easily sacrifice the interests of any particular group. It has also helped foster a society that, even under economic strain, remains committed to honoring obligations in the realm of consumption, not readily trading quality and service for lower prices. It is not just that consumers are reluctant to accept crude cost-cutting at the expense of standards; many businesses would also see such behavior as undignified or improper. As a result, most people try to maintain integrity and reliability while adapting through frugality, improving efficiency, creating new products or services, or devising more precise strategies to navigate challenges.

While Japanese society is indeed highly competitive, it is more about etiquette, rules, and a cultural commitment to maintaining public order and relational awareness. In other words, it is a society built on consensus and a foundation of coordinated responsibility. The accumulation and preservation of trust is seen as a necessary precondition for the long-term success of any brand. This reflects a culture of meticulous craftsmanship, and in business, its brand strength is shaped under sustained external pressures. When overall consumption power declines and society cannot rely on exploitation to gain advantage, this model may represent a more stable and sustainable business path.

While there are similarities between China and Japan, there are also many key differences. As early as 1990, although real estate accounted for 60% of Japanese household assets, equity-based financial assets were already widely held, with securities making up 36% of household portfolios. In contrast, real estate accounts for as much as 72% of household assets among urban families in China, while the share of equity-based financial assets remains relatively low. This suggests that if real estate values were to decline, Chinese households would face a far greater impact than Japanese households did at the time.

Furthermore, Chinese households are under significantly higher leverage pressure. In 1990, outstanding mortgage loans in Japan accounted for only 8.9% of nominal GDP and 2.4% of the total real estate market value. In contrast, the corresponding figures for China are 33.9% and 8.2%, respectively. If a real estate bubble similar to Japan's were to burst in the future, the scale of impact on Chinese society and households would be much broader, and the severity of the damage significantly greater.

Moreover, China's welfare system remains underdeveloped, and significant institutional shortcomings persist in the business environment. In contrast, Japanese society, after achieving greater efficiency, has been able to distribute the resulting "efficiency surplus" relatively fairly across different social strata through institutional and cultural mechanisms. In China, such surplus resources often flow disproportionately toward groups that hold an advantage in the process of fulfilling obligations, whether that advantage stems from market monopolies or power-based barriers. In the context of slowing economic growth, this skewed distribution mechanism risks pushing society further toward a "winner takes it all" mindset. Whether in a booming or stagnant market, if a coordinated, win-win compliance system cannot be established, it will be difficult for society to escape internal friction and growing polarization. This may be the most valuable lesson to learn from Japan's "Lost Decades": the importance of maintaining social consensus amid decline, rather than allowing adversarial dynamics to tear apart the foundations of daily life.

Final analysis conclusion:

Researchers at ANBOUND point out that while there are many contextual differences between China and Japan, even in Japan's case, certain large corporations would face a series of major quality scandals during the economic downturn. This clearly demonstrates that under the impact of economic distress, any stable society is likely to experience a degree of disorder or even turbulence, and the uniqueness of its social culture can come under intense pressure and scrutiny. Nevertheless, Japan's ability to maintain overall social stability during its "Lost Decades" remains a valuable reference for other countries. In particular, its substantial investment in the social security system proved to be a key factor in preserving societal cohesion. These investments helped sustain public consensus and prevented widespread social antagonism driven by competition.

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Zhou Chao is a Research Fellow for Geopolitical Strategy programme at ANBOUND, an independent think tank.

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