This long-term, unbalanced development has led to China’s economic woes, with more economists believing the country is facing a scenario of “balance sheet recession,” as consumers and businesses stop borrowing and investing even though interest rates continue to fall. It took Japan about 20 years to emerge from a balance sheet recession, and it appears much more difficult for China to solve this problem in the short term. China should address the balance sheet recession by repairing the imbalance in its economic balance sheet over a long period of weak demand. China’s economic downturn is likely to continue, and the phenomenon of deflation is reflected in the slump in demand. Another solution to the balance sheet recession is to transfer private debt to the government, and then monetize the debt by printing a large amount of money.
