In the first quarter of 2025, China’s macro leverage ratio rose sharply by 7.8 percentage points, from 290.7% at the end of 2024 to 298.4%. This marks the largest single-quarter increase since 2015, excluding Q1 of 2020. Notably, the government sector's leverage expansion reached its highest level in the 21st century, playing a critical role in supporting the repair of private sector balance sheets and contributing to a strong start to the year (“a good opening”). This reflects the tangible results of macroeconomic governance innovations grounded in national balance sheet management.

The repair of private sector balance sheets presented both positive developments and emerging concerns. On the one hand, policies promoting the replacement of old consumer goods and the expansion of services consumption, combined with a stabilizing real estate market, helped shift the household sector from deleveraging to leverage stabilization. On the other hand, persistently low price levels have left many firms in a “revenue growth without profit growth” dilemma. The rise in corporate leverage was largely driven by short-term loans and bill financing, while medium- and long-term credit as well as bond financing have yet to recover significantly. This indicates that endogenous financing demand remains weak and that leverage in the corporate sector may be artificially inflated.

Looking ahead, efforts to rebalance the macro leverage ratio will face the dual challenge of revitalizing endogenous economic momentum and responding to intensified global trade and geopolitical tensions. Government-sector leveraging should aim for greater precision in capital allocation to better stimulate households and enterprises to increase their own leverage where appropriate.

1. The government should continue to expand its balance sheet, directing more resources toward “investing in people.”

2. Service consumption should be further promoted to support a rebound in household leverage.

3. On the supply side, reforms to the pricing mechanism should be deepened to “squeeze out excess leverage” in the corporate sector and improve its financial structure.

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