As Chinese companies warily emerge from three years of Covid-19 controls and regulatory crackdowns, there are concerns that another big problem looms — a balance-sheet recession akin to what Japan went through after its boom.

The argument goes that China’s situation in 2023 somewhat resembles Japan’s after its 1980s real estate bubble imploded. China’s property market has ground to a halt after a long debt-fuelled boom and few expect it to bounce back soon. Consumers are scarred by the pandemic controls and distrustful of the real estate market, so they do not want to spend — at least not on new homes. 

Private businesses, equally battered after the pandemic and worried about low demand for their products, do not want to invest. Banks, meanwhile, are laden with property and related assets as well as loans to another stricken sector — local government finance vehicles, which have ploughed money into low-return infrastructure projects.