China’s debt-to-GDP ratio fell in the second quarter for the first time since 2022, even as the government kept borrowing while households and private companies pulled back under the weight of falling home prices, sluggish income growth and shrinking profit margins, according to a new report.The ratio slipped 1.1 percentage points to 308.2 per cent, the National Institution for Finance and Development (NIFD), a Beijing-based think tank, said in a quarterly report on Thursday.The ratio compares debt with the size of the economy, measured by nominal gross domestic product growth. China’s second-quarter nominal GDP grew by 5.9 per cent.The report, however, warned that the headline debt level improvement masked continued balance-sheet contraction in the private sector, with households paying down debt and many private firms still reluctant to borrow or invest.Households had been cutting debt since mid-2024, with their debt-to-GDP ratio falling a further 1.3 percentage points to 57.7 per cent, according to the report. Mortgage lending shrank for a 13th straight quarter, while the decline in consumer lending accelerated to 1.8 per cent from 0.2 per cent in the first quarter, as sliding home prices and sluggish income growth curbed borrowing.Whether better inflation expectations and faster nominal growth can be sustained depends on the repair of private-sector balance sheets and on the government taking on more debtWhether better inflation expectations and faster nominal growth can be sustained depends on the repair of private-sector balance sheets and on the government taking on more debt