context: A balance sheet recession refers to a period of time after a bubble bursts when firms and households choose to pay off existing debts rather than increase spending or investment. It was originally used to describe Japan's economy in the 1990s. The slow economic recovery post-2008 is also believed to be due to a balance sheet recession.
Richard Koo Nomura chief economist and originator of the term balance sheet recession stated in July that the PRC is facing a balance sheet recession. Domestic economists weighed in on whether or not that is the PRC's challenge
- Luo Zhiheng 罗志恒 Yuekai Securities chief economist argues that the PRC is not facing a balance sheet recession, just a lack of demand and confidence
- Ming Ming 明明 CITIC Securities chief economist said that although household balance sheets have shrunk, the loan and asset-liability ratio of the corporate sector is still rising
- unlike in Japan, asset prices have not plummeted
- the large domestic market means there is still room to expand demand and income levels can grow
- strategic emerging industries can drive the economy even as traditional ones slow their investment
- Haitong Securities noted in a research report that although PRC consumer spending is weak it does not indicate a long-term decline
- while real estate prices are weak they have not collapsed
- further weakening of household balance sheets is not expected as the economy continues to recover
- Li Xunlei 李迅雷 Zhongtai Securities chief economist argues that increased investment in green energy and smart tech will allow the PRC to avoid a 'lost decade'