PBOC Reiterates Tolerance for Higher Interim Macro-Leverage Ratio Amid Covid
Du Chuan
DATE:  Oct 15 2020
/ SOURCE:  Yicai
PBOC Reiterates Tolerance for Higher Interim Macro-Leverage Ratio Amid Covid PBOC Reiterates Tolerance for Higher Interim Macro-Leverage Ratio Amid Covid

(Yicai Global) Oct. 15 -- Interim increases in China's macro-leverage ratio will continue to be indulged against the backdrop of pandemic prevention and control measures and recovery in the macro economy, the People's Bank of China reiterated yesterday.

"What we are facing now are special circumstances, and the resurgence of macro-leverage ratios is a manifestation of macro policy support for pandemic prevention and control and national economic recovery," said Ruan Jianhong, head of the PBOC's Census and Statistics Division, at a press briefing for third-quarter financial data release yesterday. "We should [thus] allow temporary increases in macro-leverage ratio to expand credit support to the real economy," she added.

Officials also signaled increased tolerance for rising leverage ratios on April 10 and July 10 when first- and second-quarter company financial data were released.

Increasing the macro-leverage ratio -- the rate between a country's aggregate debts and its gross domestic product -- means a higher debt-to-income ratio and heavier debt burden on the economy, resulting in a correspondingly higher default risk. The ratio is thus usually regarded as a key indicator in assessing economic risks.

China's macro-leverage ratio rose by 21 percentage points to 266.4 percent in the first half from 245.4 percent at last year's end, a report the Chinese Academy of Social Sciences' Institute of Economics published earlier this year shows. The ratio rose only 6.1 percentage points throughout all of last year.

Braking Good

Growth in China's macro-leverage ratio began to significantly slow as the outbreak came under preliminary control. The ratio rose 13.9 percentage points in the first quarter, but only climbed 7.1 percentage points in the second, said the report from the Chinese Academy of Social Sciences' Institute of Economics.

The country's annual macro-leverage ratio gain averaged 11.4 percentage points between 2008 to 2016, but this figure has averaged a mere 8.1 percentage points since 2017, Ruan noted. Therefore, leeway is available for interim increases in macro-leverage ratios in the course of epidemic prevention and control and supporting the recovery of the economy.

"China's national economy has been recovering steadily, with positive GDP growth in the second quarter and expected higher growth in the third quarter," Ruan said. "This has fostered the conditions for better maintaining the macro leverage ratio at a reasonable level in future," she stressed.

Compared with other countries, China's macro leverage ratio is above average but still not high overall, according to China Minsheng Bank's Chief Researcher Wen Bin.

Leeway is still thus present for more leverage in fiscal policy.

Editors: Tang Shihua, Ben Armour

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Keywords:   Leverage Ratio,Government Policy,Macro Economy,PBOC