Chinese Central Bank Hails Successful Containment of Macro-Leverage Growth Despite COVID-19


The People’s Bank of China (PBOC) has touted the success of its efforts to contain China’s macro-leverage levels despite the adverse impacts of the COVID-19 pandemic last year.

According to preliminary estimates China’s macro-leverage ratio (the ratio of total debt in the Chinese economy to GDP) stood at 276.8% as of the end of the first quarter of 2021, for a decline of 2.6 percentage points, and the second consecutive quarter of decline.

In an article published by PBOC, Ruan Jianhong (阮健弘), the head of PBOC’s statistics department, and Liu Xi (刘西), an official from the department, said that “since 2017 China’s steady push for deleveraging has achieved considerable success.”

“In 2017, China turned around the trend of a rapid rise in the leverage ratio that had run for several years, and in 2018 successfully reduced the leverage ratio by 3 percentage points.

“During the period from 2017 to 2019 [the leverage ratio] rose by 7.3 percentage points in total, far lower than previous gains.”

The shock of the COVID-19 pandemic led to a surge in China’s macro-leverage ratio of 23.5 percentage points in 2020, as Beijing loosened monetary and fiscal policy and stepped up credit extension in order to keep the economy afloat.

Ruan and Liu point out however, that growth in the macro-leverage ratio narrows from the second quarter onwards, decelerating from 14 percentage points in the first quarter, to 7.2 percentage points in the second quarter, to 3.9 percentage points in the third quarter.

By the fourth quarter of 2020 the macro-leverage ratio was declining, with a 1.6 percentage point fall, while in the first quarter of 2020 it’s further expanded its decrease, sliding by 2.6 percentage points.

As of the end of the first quarter the leverage ratio of China’s household sector was 72.1%, for a decline of 0.4 percentage points compared to the end of last year, while for the government sector the figure was 44.5%, for a 1.2 percentage point slide, and for the non-financial enterprise sector it was 160.3%, for a decline of 0.9 percentage points.

China’s Macro-leverage Ratio Since 2016 According to PBOC Data

201620172018201920202021 Q1
Household sector52.257.060.565.172.572.1
Government sector36.736.038.438.645.744.5
Non-financial enterprise sector159.8159.0152.2152.1161.2160.3
Macro-leverage ratio248.6252.0249.0255.9279.4276.8

Ruan and Liu further point out that China’s macro-leverage growth during the COVID-19 pandemic was lower than that of advanced economies, as well as the global average.

China’s leverage ratio rose by 25.1 percentage points during the period from the end of 2019 to the third quarter of 2020, as compared to gains of 36.8 percentage points for the US, 36.3 percentage points for Japan, 28.1 percentage points for the Eurozone, and 33.1 points for developed economies as a whole, according to data from the Bank for International Settlements (BIS).

The average increase globally was 26.6 percentage points, while the average increase for developing economies was 21.8 percentage points.

Ruan and Liu highlighted the early recovery of Chinese GDP growth from COVID-19 as a key factor behind China’s ability to curb macro-leverage ratio gains, pointing in particular to effective containment of the pandemic by Beijing as well as the effectiveness of targeted fiscal measures.

“In 2020 net financing via government bonds was 8.32 trillion yuan, 3.6 trillion yuan more than in 2019…these macro-adjustment policies effectively supported the stabilisation of the economy, and since the second quarter of 2020 economic growth has steadily risen, from 3.2% to 4.9% in the third quarter and 6.5% in the fourth quarter,” they wrote.

“By the first quarter of 2021 the stability of GDP was restored, with YoY growth of 18.3%, driving a 2.6 percentage point decline in the macro-leverage ratio compared to the end of last year.”

The PBOC officials anticipate further containment in the macro-leverage ratio as well as structural improvements, amidst efforts by regulators to increase the efficiency of the Chinese financial system.

“At the end of the first quarter of 2021 total debt posted a YoY rise of 11.5%, but this growth was at a comparatively low level historically, 0.9 percentage points less than at the end of last year, and five percentage points less than the average rate of total debt growth during 2009 – 2019.

“The growth of the Chinese economy is steadily returning, while the rate of growth in the scale of debt is steadily declining. This clearly indicates that macro-adjustment policies are being more smoothly transmitted to the real economy, and the efficiency of debt funds has markedly increased.

“This mainly has drawn benefit from: monetary policy firmly putting service of the real economy in an even more prominent place; the tiered, graded implementation of financial support policies, the war on financial risk containing blind growth, and the steady advance of financial reforms.”