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Japan has had a tough few decades economically speaking but China may soon follow in its footsteps, warns the CEO of a global alcohol giant.
“We are now at a tipping point [in China],” Suntory Holdings CEO Takeshi Niinami told Yahoo Finance executive editor Brian Sozzi on his Opening Bid podcast (video above; listen below). Suntory is the maker of globally renowned Japanese whiskey brands such as Yamazaki and Hibiki, and has owned Jim Beam since 2014 as part of a $16 billion acquisition.
“The deflation in China is very similar to the one we experienced,” Niinami said from inside Suntory’s New York City headquarters. “The key issue is people have money but people don’t want to spend money, and overproduction.”
Japan’s economic bubble burst in the early 1990s led to a deflationary period that lasted over three decades. Rock bottom interest rates did next to nothing to spur growth.
It’s a struggle that Niinami referred to as “an invisible monster” in a Financial Times op-ed this past spring. Only recently has Japan’s economy reawakened amid an improvement in consumption — gross domestic product (GDP) rose 0.8% sequentially in the second quarter.
To be sure, China has felt the economic squeeze of late.
Consumers are avoiding spending money and buying items on credit over an extended period of time. China’s second quarter GDP advanced 4.7% year over year, missing expectations of 5.1%. Companies from Nike (NKE) to Levi’s (LEVI) has warned on further challenges ahead for their operations in the country.
To tackle the challenges, China recently announced a sovereign bond stimulus package to the tune of 2 trillion yuan (equal to $284.43 billion). The stimulus will be split, with half going to local governments to help alleviate their debts, and half towards subsidizing purchases of items such as home appliances and to give 800 yuan per child for households with two or more children.
Chinese stock prices have subsequently surged. Still, key challenges include an aging population, inadequate social security systems, and high youth unemployment rate.
Niinami noted the government should encourage “risk-taking in the private sector” and innovation.
However, he isn’t about to give up on China altogether. “We will stay there until they come back to moderate inflation,” he said. “In the next 10-20 years, perhaps China will be back.”
“China should create mechanisms to reward risk-taking by companies and individuals with the aim of creating an economy led by private enterprises, not state-owned ones,” Niinami added.
Three times each week, Yahoo Finance Executive Editor Brian Sozzi fields insight-filled conversations and chats with the biggest names in business and markets on Opening Bid. You can find more episodes on our video hub or watch on your preferred streaming service.
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