(Yicai Global) Feb. 14 -- China’s macro leverage ratio, a gauge of debt versus productivity, is predicted to rise slower this year due to economic recovery after exceeding expectations last year, according to government experts.

The ratio of total debt to gross domestic product grew by 10.4 percentage points to 273.2 percent as of Dec. 31, 2022, from a year earlier, higher than the expected 4.2 point increase predicted a year ago, according to an annual research report released by the National Institution for Finance & Development.

The gauge of financial health will be widening slower this year because China's economic recovery is expected to accelerate with reduced dependency on debt issuance, Liu Lei, secretary general of the NIFD’s National Balance Sheet Research Center, told Yicai Global. 

The main reason for the larger-than-expected increase of debt burdens in 2022 is the slowdown in economic growth, with the real GDP climbing only by 3 percent, Liu said. Most of the addition took place in the first half as GDP growth recovered in the second half, he said, adding that another reason for the debt pile-up in the first half is that local governments issued most of their 2022 bonds before July.

Liu's muni bond claim is supported by regional data as local governments issued a total of CNY7.37 trillion (USD1.1 billion) in bonds in 2022, and more than 71 percent of that was completed by June, the report shows. 

It is true that the first two quarters were worse than the last ones as the macro leverage ratio gained year-over-year by 4.5, 4.6, 1.0, and 0.3 percentage points, respectively, per the institution under the Chinese Academy of Social Sciences.

Liu said that the quarter-to-quarter trend will remain similar in 2023 with a bigger increase in the first half but stabilizing later in the year.

The 2023 leverage ratio might even remain stable if China’s economy rebounds more than expected after the Covid-19 pandemic, per the report. If the GDP growth rate can reach 5.5 percent this year, the macro leverage ratio is expected to rise only around 5.5 percentage points by Dec. 31, the finance institute predicted. 

There is certainly some upside potential for the macro leverage ratio in 2023, but the growth rate should be slower than last year, Pang Ming, chief economist of Jones Lang LaSalle Greater China, said to Yicai Global. 

Editors: Tang Shihua, Emmi Laine, Xiao Yi