China’s debt ratio continued decline in first quarter as economy rebounded from coronavirus pandemic

China’s total debt ratio fell 2.6 percentage points to 276.8 per cent of GDP in the first quarter after rising amid the pandemic last year

Central bank says debt ratio reduced without tightening credit conditions, but by greater efficiency of economic support measures

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China’s total debt ratio fell 2.6 percentage points to 276.8 per cent of GDP in the first quarter. Photo: Reuters

Published: 7:30pm, 6 May 2021Updated: 10:44pm, 6 May 2021

China has begun gradually reducing its debt-to-GDP ratio without compromising support for the nation’s post-pandemic economic recovery, the central bank has said in a new report.

The non-financial leverage ratio stood at 276.8 per cent at the end of March, 2.6 percentage points lower than the end of December, following a fall of 1.6 percentage points in the fourth quarter, the People’s Bank of China (PBOC) said.

“As the impact of the pandemic gradually abates, the stabilisation of economic growth has been matched with that of the debt level, so [we] estimate the macroeconomic leverage ratio will remain basically stable this year,” said the report’s authors Ruan Jianhong, head of the PBOC’s statistics and analysis department, and her colleague Liu Xi.

The nation’s macroeconomic leverage, usually measured as the ratio of debt to gross domestic product (GDP), is one of the most closely watched economic indicators in Beijing.

China’s top leaders have vowed to reduce financial risks that stemmed from the sharp rise in overall debt during the pandemic, particularly among local governments, state-owned enterprises and households.

Debt data is not published regularly by the central bank, but it has been referenced internally in support of the government’s deleveraging campaign that was started in 2018.

The programme, started in 2018, was effectively suspended last year due to the economic impact of the pandemic, but it is once again a policy priority this year.

The world’s second largest economy has already started scaling back trillions of yuan worth of stimulus launched to fight the pandemic. The national leverage ratio jumped by 23.5 percentage points last year, compared to a rise of 6.9 percentage points in 2019 and a decline of 3 percentage points in 2018 owing to the deleveraging campaign, said the PBOC report that was released last week.