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May 14, 2018

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PBOC: China’s macro leverage rise likely to slow

China’s macro leverage growth will likely continue to slow, said the People’s Bank of China.

The PBOC said in a report that the country’s overall leverage rose to 250.3 percent last year, up by only 2.7 percentage points from a year ago. “The growth rate dropped substantially,” it said.

China’s liabilities had been rising rapidly during previous years, with the macro leverage ratio rising 13.5 percentage points each year from 2012 to 2016.

The slowdown came after expansion of supply-side structural reform, a firmer economy and the effective implementation of a prudent, neutral monetary policy, the central bank said.

The PBOC believes China will be able to continue stabilizing its macro leverage and gradually push forward structural deleveraging, citing supportive factors such as a quality-oriented economic shift and strengthened financial supervision.

“The economic transition from high-speed expansion to high-quality development requires higher utilization ratios of debt capital, which will help prompt a downturn in leverage ratios,” the PBOC said. “Stronger financial regulation and improved financial markets will curb shadow banking-driven leverage growth.”

The PBOC also expects slower monetization in commodity and factor markets, standardized fund-raising of local governments, and continued reforms to contribute to stable leverage.

In 2017, corporate leverage dipped to 159 percent from 159.7 percent a year ago, marking the first drop since 2011.

Government leverage fell 0.5 percentage points to 36.2 percent, and household leverage rose 4 percentage points to 55.1 percent, slower than a year ago.


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