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Adam Wolfe in FT Unhedged: ‘China isn’t deleveraging yet’

Ella Rathgeber

30th AUG. 2023

FT’s Ethan Wu continues his discussion about China’s struggling economy, arguing against the notion of a balance sheet recession, but rather suggesting China’s problem appears ‘more like a consumer confidence deficit plus a meltdown specific to property investment’.

Evidence used to support this argument was the rise in consumers’ precautionary savings, but this had been challenged by the idea that ‘precautionary savings may just be part of a larger balance sheet recession picture, rather than evidence against it’.

Wu pushes back, arguing that ‘weaker investment in China has not materialised, other than in the property sector’. ASR’s Adam Wolfe shares his expertise on the topic, arguing that ‘in Japan’s 1990s balance sheet recession, many companies were overextended amid a broad-based asset bubble; in China, it is largely construction developers that are stretched. And unlike in the US housing crash, China’s real estate bubble is narrowly concentrated in new housing construction’. Wolfe comments, “China never saw credit being used to inflate the value of existing homes.”

· To read Ethan Wu’s article in full from the FT, please see: HERE 

· For more insight on this topic, see: A Chinese balance sheet recession?

· ASR clients can read Adam’s latest report on: China opts or bank profits over rate cuts

· If you are interested in a free trial of our research, please see: HERE

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