A cautionary tale from an ageing Japan for China
We’ll send you a myFT Daily Digest email rounding up the latest Property sector news every morning.
Echigo Yuzawa seems to have everything going for it. Just one hour and 15 minutes from Tokyo by bullet train, the charming mountain town is famed for its onsen — or hot springs — excellent skiing and as the home of Japan’s best rice and sake.
It even acquired an aura of literary sophistication and glamour when Yasunari Kawabata became the first Japanese author to win a Nobel prize in 1968 for his novel Snow Country. Set in early 20th-century Echigo Yuzawa, it tells the story of a minor Tokyo aristocrat’s love affair with a small-town geisha.
Today, the town epitomises the key challenge facing Japan’s rural economy: adverse demographics. As such it is a story whose relevance reaches well beyond the world’s third-biggest economy to countries facing similar developments.
In Echigo Yuzawa it begins in the town centre where many of the shopfronts are boarded up and most restaurants only open at the weekend in winter when skiers make the day trip from Tokyo.
Prices for condominiums in the surrounding valley have fallen by more than 95 per cent since the height of the bubble era in the late 1980s and early 1990s. I bought one for less than the price of a second-hand car a decade ago thinking I had made a great investment. Today some of my neighbours are paying people to take them off their hands.
To visit the resort hotels and condo complexes dotted throughout town is to step into a world frozen in 1989, complete with faux fondue restaurants and fluorescent fashion statements.
Estate agents estimate 75 per cent of apartments in the area are vacant. The sheer scale of the housing and construction bubble that reached its zenith nearly 30 years ago means property prices may never recover here or in other parts of rural Japan. Demand is draining away even without the oversupply as the population ages and people move into the cities.
Japan’s population shrank by 403,000 in 2017 and on current trends it will drop from 126.5m to 51m by 2115. More than a fifth of Japan’s land, an area the size of Denmark, has no readily contactable owner.
The aftermath of the bubble and the shrinking population have caused decades of stagnation. Japan’s gross domestic product growth rate has bumped along between zero and 2 per cent for most of the past 30 years as successive governments struggled to pull the economy out of deflation.
An obvious solution would be to encourage more immigration and make it easier for foreigners to snap up the empty flats and start businesses in towns like Echigo Yuzawa. Many wealthy western societies are also ageing rapidly but have dealt with this by allowing large-scale immigration. But Japan has never wavered in its opposition to foreign infiltration and that is unlikely to change soon.
Japan’s challenges provide a cautionary tale for other Asian economies, most importantly China. Last year, 17.23m babies were born in China, a drop of 630,000 from a year earlier despite Beijing scrapping its decades-old “one-child policy” in late 2015. The working age population increased by around 380m between 1980 and 2012, and this is probably the single biggest factor behind China’s incredible economic expansion of the past few decades.
While the country’s overall population is growing slowly, the number of workers has been shrinking since 2012. Analysts at Bank of America Merrill Lynch estimate that by 2050 it will drop by 212m — about one-third of the current total. That is the size of the population of Brazil, the world’s fifth most populous nation.
This demographic decline will come in the wake of a housing and construction boom that puts Japan’s bubble era to shame. In just five years from 2012 until 2016, China produced nearly three times as much cement as the US did in the entire 20th century.
Much of that went into building apartment blocks in rural towns where land and property prices have been inflated by local governments that relied on land sales for much of their fiscal spending.
When you consider that most of the Chinese construction boom of the past decade was paid for with credit and that land valued at inflated prices makes up most of the collateral for those loans, then the foundations of China’s entire financial system start to look shaky.
Today you can get on a sleek bullet train in Beijing and ride across the country and all you will see outside your window for most of the trip are half-built or empty apartment blocks. In a couple of decades those buildings may well serve as monuments to China’s bubble era and demographic decline just as the spooky hotels and condos of Echigo Yuzawa now testify to Japan’s.
Letter in response to this column:
Get alerts on Property sector when a new story is published