China shows none of 1929’s collapse in output, jobs, prices or money. Its depression is in property and household debt. That is Japan’s pattern: the economy keeps growing while private borrowing shrinks, and stocks can fall for years anyway.
I agree the 1929 comparison is the wrong frame, and Japan is clearly closer. One worry I have with the balance-sheet recession diagnosis: the signal you propose, household loans which fell 3.6 percent in the year through September, moves slowly by construction, so it may confirm the repair is ending long after markets have decided. What I am watching instead is the 300 billion yuan capital injection into the big banks this quarter and whether the one percentage point mortgage subsidy moves first-time buyers. If neither shifts household borrowing over the next two quarters, the repair is not ending, it is being extended, and low China valuations stay low.
Fair point on the lag, which is why we'd watch the monthly flow of new household loans rather than the year-on-year change. The flows move first, and October's data lands in mid-November. On the bank injections, Japan is a warning: its capital injections began in 1998, but bank lending didn't grow again until 2005. Giving banks more capital doesn't make households borrow, so the mortgage subsidy is the better early test.
Good, then we have a date to mark. October's new-loan flows land mid-November, and if the monthly run rate has not turned by then, the year-on-year number will not rescue the story. And your Japan point is exactly right: recapitalising banks repairs balance sheets, it does not create borrowers. The mortgage subsidy is the demand-side test, which is where a 1929 break would show up first.
I agree the 1929 comparison is the wrong frame, and Japan is clearly closer. One worry I have with the balance-sheet recession diagnosis: the signal you propose, household loans which fell 3.6 percent in the year through September, moves slowly by construction, so it may confirm the repair is ending long after markets have decided. What I am watching instead is the 300 billion yuan capital injection into the big banks this quarter and whether the one percentage point mortgage subsidy moves first-time buyers. If neither shifts household borrowing over the next two quarters, the repair is not ending, it is being extended, and low China valuations stay low.
Fair point on the lag, which is why we'd watch the monthly flow of new household loans rather than the year-on-year change. The flows move first, and October's data lands in mid-November. On the bank injections, Japan is a warning: its capital injections began in 1998, but bank lending didn't grow again until 2005. Giving banks more capital doesn't make households borrow, so the mortgage subsidy is the better early test.
Good, then we have a date to mark. October's new-loan flows land mid-November, and if the monthly run rate has not turned by then, the year-on-year number will not rescue the story. And your Japan point is exactly right: recapitalising banks repairs balance sheets, it does not create borrowers. The mortgage subsidy is the demand-side test, which is where a 1929 break would show up first.
China’s economic slowdown just got a 1929 comparison.