Part 8/11:
As real estate prices plummet, a dangerous cycle begins, known as a balance sheet recession. Highly indebted households and developers are forced to sell properties to rebalance their finances, leading to further decreases in home prices and tightening credit conditions. The present strategy of cutting interest rates does little to alleviate the inherent lack of demand for credit, raising questions about the viability of current fiscal policies.
Moreover, the yuan has begun to face pressure amid regulatory changes, complicating the situation further. China’s capital controls have provided temporary insulation, but as the situation unfolds, the interconnectedness of global markets means the fallout from China’s economic woes will likely spread.