Summary: Having created history’s most epic debt bubble, China boldly bets that fiscal stimulus to the tune of trillions of CNY is the only answer.
China is mired in a classic balance sheet recession akin to the Japanese experience of the 1990’s. In an epic binge, the country inflated a corporate debt and real-estate debt bubble without parallel in global economic history. China’s corporate debt alone stands at north of 150% of GDP. Local government debt is on the order of another 80-90% of GDP. Household debt is not as high as elsewhere, but much is linked to a suffering real estate market.
When countries enter a balance sheet recession, every actor in the economy, both public and private, is strongly incentivised to pay down debt to repair balance sheets. But this effort to improve finances only worsens the collective outlook as economic activity and…
