China's Loan Drop Stokes Fears of 'Balance Sheet' Recession.

ECONOMIC indicators; INVESTORS; GOVERNMENT securities; LOANS; WAGE increases

China's recent contraction in bank loans has raised concerns about a potential "balance sheet recession" similar to Japan's experience in the 1990s. The decline in corporate borrowing and increased debt repayment by households contributed to the first decrease in bank loans since 2005. This decline in credit demand is attributed to a property slump and cautious consumer behavior. While there are similarities between China's situation and Japan's, such as weak credit demand and falling asset prices, there are also differences that suggest China may not face the same stagnation. The debt-to-GDP ratio for the household sector has remained stable, and China's real estate collapse has been less severe than Japan's. Additionally, China's foreign exchange policy is more flexible than Japan's, which could mitigate the impact of external shocks. However, economists warn that policymakers need to stabilize asset prices and address the lack of follow-through in recent easing measures to prevent a further decline in the economy. [Extracted from the article]

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