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China Should Act Early To Avoid Balance Sheet Recession

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China’s macro leverage (debt-to-GDP) ratio increased 0.8 percentage points to 273.9% in Q3, slower than the rise of 4.9 percentage points in Q2, as both the household and corporate sectors conservatively expanded debt, Yicai.com reported, citing a report by National Institution for Finance & Development. The leverage ratio of the household sector rose by 0.1 percentage points in Q3, as the growth rate of household debt dropped to a new low of 7.2% amid sluggish demand for housing mortgage and consumer loans. Companies still have limited willingness to raise funds, while the debt quota of local governments had been nearly fully used in the first half of the year. China should be alert to the risk of balance sheet recession and take measures to avoid the financial cycle peaking and falling too early, the report said.

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China’s macro leverage (debt-to-GDP) ratio increased 0.8 percentage points to 273.9% in Q3, slower than the rise of 4.9 percentage points in Q2, as both the household and corporate sectors conservatively expanded debt, Yicai.com reported, citing a report by National Institution for Finance & Development. The leverage ratio of the household sector rose by 0.1 percentage points in Q3, as the growth rate of household debt dropped to a new low of 7.2% amid sluggish demand for housing mortgage and consumer loans. Companies still have limited willingness to raise funds, while the debt quota of local governments had been nearly fully used in the first half of the year. China should be alert to the risk of balance sheet recession and take measures to avoid the financial cycle peaking and falling too early, the report said.