(Yicai) Jan. 30 -- China’s macro leverage ratio, the proportion of total debt to the gross domestic product, rose sharply last year despite the limited growth of the country’s debt, according to a think tank under the Chinese Academy of Social Sciences.

Last year’s macro leverage ratio jumped 13.5 percentage points to 287.8 percent from the year before, versus an 11.5 percentage points increase in 2022 from 2021, according to a research report released by the National Institution for Finance and Development on Jan. 25.

Non-financial enterprises contributed 6.9 percentage points to the total macro leverage ratio last year, followed by the government and residential sectors contributing 5.3 percentage points and 1.3 percentage point, respectively, the report showed. The figures reflect that residents’ initiative to reduce the leverage ratio is quite aggressive when the economic environment is poor.

Even though China’s debt grew at a historic low rate last year amid de-leverage efforts in all economic sectors, the macro leverage ratio rose sharply because of the significant slowdown in the country’s nominal GDP, the NIFD noted, adding that the macro leverage ratio is expected to continue growing this year.

China’s GDP rose 5.2 percent last year from the previous one, while the nominal GDP inched up 4.6 percent in the period, according to data released earlier this month by the National Bureau of Statistics.

“The decline in prices significantly slowed down the nominal GDP growth rate last year, making the growth of the economic aggregator, which is the denominator in the formula to calculate the macro leverage ratio, smaller than the growth of debt, which is the numerator,” Liu Lei, secretary-general of the Research Center for National Balance Sheet at the NIFD, told Yicai.

China’s macro leverage ratio soared over 41 percentage points in the four years after the Covid-19 outbreak, with the government sector contributing 17.3 percentage points, the most among sectors, according to the NIFD report.

China should expand effective demand and increase its nominal GDP growth target to stabilize the macro leverage ratio this year, the NIFD suggested.

The government should set the nominal GDP growth target for this year at around 7 percent and publicly commit to continue increasing economic stimulus until the target is reached, thus achieving a turnaround in market expectation and pushing for healthy recovery, according to the NIFD.

“Monetary policies, including interest rate cuts, may have a positive impact on the performance of existing projects, but only a limited one on new investment,” Liu said, adding that authorities need to raise companies’ expectations for future revenue growth by introducing fresh fiscal policies, such as issuing more bonds and increasing government spending.

Editors: Tang Shihua, Futura Costaglione