Conventional wisdom says that when the household sector borrows more, they tend to spend more as well. But the logic in China currently operates in reverse: household leverage is already too high and is siphoning off consumer spending, not boosting it. Rebalancing to a consumption-driven growth model requires reducing household leverage, particularly from mortgages. Renewed tightening measures targeting the property market move in the right direction, but Beijing’s tolerance for short-term economic pain will be tested again.
