China’s Macro-Debt Growth Accelerates in 2023

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China has seen accelerated growth in its aggregate debt levels in the first quarter of 2023, as Beijing continues to spur credit expansion to help the economy recover from Covid-related impacts.

Data released by the People’s Bank of China (PBOC) on 20 April indicates that China’s macro-leverage ratio rose by 8 percentage points in the first quarter of 2022 to 289.6%.

The macro-leverage ratio in China is defined as the ratio of total debt to gross domestic product.

The increase arrives following a rise in China’s macro-leverage ratio of 9.6 percentage points to 281.6% in 2022 – a year that saw the economy falter beneath the pressure of reimposed Covid restrictions.

The rise in China’s aggregate debt levels marks a sharp contrast to the mid-point of the pandemic, when the macro-leverage ratio actually posted declines.

China’s macro-leverage ratio stood at 272.5% as of the end of 2021, for a decline of 7.7 percentage points compared to the end of 2020, according to figures released by PBOC.

PBOC official Ruan Jianhong (阮健弘) said that since the outbreak of the pandemic, the impact of changes in economic growth on the macro-leverage ratio has become more pronounced.

“With the increase in economic growth fluctuations, the macro-leverage ratio has also correspondingly exhibited rapid increases and decreases,” Ruan said.

“The increase in the macro-leverage ratio objectively reflects the impact on economic growth, as well as the effects of counter-cyclical policies. The impact of counter-cyclical policy on debt growth will be reflected in the current period, while the impact on economic growth will be relatively lagging, resulting in a short-term mismatch between economic growth and debt growth.”

According to Ruan, the Q1 rebound in the macro-leverage ratio is also partially due to seasonal factors.

“Based on historical data, the change in the macro leverage ratio has very pronounced seasonal characteristics. It usually rebounds more in the first quarter compared to the previous year, and the growth rate is the highest out of all quarters of the year.

“This is closely related to the seasonal nature of high credit distribution and low GDP growth. In addition, in the first quarter of this year, the economy was still in the process of recovery, and the financial system increased its support for the real economy, with factors such as the advance issue of government bonds strengthening the seasonal nature of the macro-leverage ratio.”

Ruan said PBOC anticipates stabilisation of the macro-leverage ratio in 2023 as China’s economic recovery continues.

“It should be noted that China’s economic recovery and development momentum is good, which will help to maintain a basic stability in the macro-leverage ratio for the whole year.”

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