(Yicai Global) Nov. 3 -- China's macro leverage ratio fell again in the third quarter, but at a slower pace than in the previous three months, according to a new report that said the period of rapid deleveraging driven by economic growth may be over.

The measure of the economy’s overall indebtedness narrowed by 0.6 percentage point to 264.8 percent in the September quarter, compared with 2.6 points in the June quarter, the report by the National Institution for Finance and Development showed. The total decline over the first nine months of this year was 5.3 points.

After reaching a record high of 271.2 percent in the third quarter of last year, the macro leverage ratio has shrunk for four quarters in a row, with a cumulative contraction of 6.4 points.

But economic growth fell short of expectations in the September quarter, resulting in the ratio’s slower pace of decline, said Liu Lei, secretary-general of the NIFD’s national balance sheet research center.

Zhang Xiaojing, director of the Institute of Finance and Banking, pointed out that debt growth slowed more than expected in the quarter, but potential economic growth was much lower than expected, thereby contributing less to the deleveraging process.

The NIFD’s report showed that the total debt in the real economy rose 2.1 percent in the third quarter from the prior one, which was slightly lower than the increase in the second quarter and also lower than the average quarter-on-quarter growth rates in the past few years. Year-on-year debt growth was 9.7 percent, the lowest since the beginning of this century.

“From an overall perspective, the economic recovery will become a key factor affecting the macro leverage ratio in the next few quarters, and probably presents the biggest concern for the stability of leverage,” said Zhang.

Ming Ming, deputy director of the Citic Securities Research Institute, predicted that the bottom of this round of the debt cycle, or the low point of the absolute value of the leverage ratio, is likely to appear at the end of this year.

Liu pointed out that the economic development concerns the NIFD pointed to in the second-quarter report have indeed appeared in the third quarter, such as corporate reluctance to invest, developers struggling with debt risks, real estate investment growing more slowly, and infrastructure investment growth being inhibited by tougher standards for special local government bond issuance.

The NIFD’s third-quarter report suggested that some easing of monetary policy may be needed to boost corporate confidence and restore investment growth. The report also advised that the government increase fiscal expenditure to stimulate infrastructure investment as well as private investment.

Editor: Tom Litting