At the end of 1989, Japan's bubble economy burst and its economic miracle came to an abrupt end. The Nikkei exchange fell from nearly 40,000 to its current 10,000 range. Today, China, in some ways, appears to be closer to following Japan than to sustaining its own economic miracle.

China's Shanghai Index (stocks) has fallen from a high of 7,000 in 2007 to a low of 2,000 for the past few years, and Chinese domestic investors have little confidence in their domestic stock market. The Japanese bubble, and its aftermath, was the result of a series of domestic financial and economic imbalances, many of which China faces today-to varying if not greater degrees.

Exploring similarities between Japan-in the run up to, and over the past two decades-and contemporary China is useful when trying to look a decade or two into the future to consider China's fate.

Most significantly, China's banking system mirrors Japan's from the mid-1980s until Japan's bubble burst. Both systems are arms of the state, which channel capital to fuel the "economic engine," favoring corporate growth to the detriment of the consumer: Japan favoring the interwoven, collaborative Keiretsu model and China promoting the growth of State Owned Enterprises (SOEs).

Chinese banks, repeating the experience of their Japanese counterparts, have overseen a fourfold increase in total loan growth in less than a decade, driven mostly by property-related loans. Between 40% and 60% of total loan value in the banking system is backed by real estate in one form or another. System-wide reliance on real estate as collateral may be particularly pernicious given the meteoric rise of property prices in China and the central role real estate bubbles have played in recent financial and economic crises. Real-estate bubbles have been one of, if not the, common denominator of every financial crisis over the past 20 years, from the US savings and loan crisis and the Japan bubble, to the Asian Financial Crisis in 1997 and the most recent global financial crisis in the US and Europe.

Property prices in Japan and China, driven by speculation (supported by the banks), were pushed to unaffordable levels, limiting and in some cases prohibiting, middle-class homeownership in each country. Government policies favoring the construction industry created the problem as both countries tried to "grow their way out of the problem" by "paving over the countryside" with infrastructure developments.