China’s debt-to-GDP ratio reached a record in the second quarter, with total debt rising to 281.5% of GDP.

This suggests China is not facing a “balance sheet recession,” but reduced borrowing growth will hamper GDP growth.

The macro-leverage ratio rose to 283.9% in the second quarter, but household debt is rising at half the rate of the preceding two decades.

Nomura Research Institute head economist Richard Koo claims China is suffering a “balance sheet recession,” with households more concerned about repairing their balance sheets and firms cautious to borrow to expand.

The research tank predicted an “atypical” balance sheet recession that would hinder GDP growth, but China can avert it by borrowing more and lowering interest rates.

China’s turnaround is deleveraging, with the real estate sector deleveraging partially due to government policy.