China’s Loan Drop Stokes Fears of ‘Balance Sheet’ Recession (3)

China’s first bank loan contraction in nearly two decades has fanned fears the world’s No. 2 economy is careening toward a “balance sheet recession” as Japan did decades ago.

A plunge in new corporate borrowing combined with households preferring to repay debt saw bank loans shrink last month for the first time since July 2005. That deepened China’s years-long battle with weak credit demand, as a property slump spurs caution on buying homes and expanding investment.

Determination among consumers and businesses to pay down debt following real estate collapse is seen as a hallmark of Japan’s stumble into decades of ...