China’s economic slowdown is extending, as corporate China is increasingly unwilling to borrow, spend, and invest. Since Q3 2020, corporate bond issuance has been net negative for all borrowers except local government financing vehicles (LGFVs), and overall issuance has declined sharply over the past three months. More recently, contracting bond issuance has ironically coincided with lower interest rates and near-record lows in corporate credit spreads. Asset scarcity in China’s bond market is likely to pressure government and corporate yields to move even lower. But the broader problem in credit demand suggests a balance sheet recession is underway within China’s private sector.
