In 2024, China’s macro leverage ratio continued to rise passively, although the pace of increase moderated. On one hand, total debt in the real economy grew by 8.0% year-on-year, with household and corporate sector debt rising by just 3.4% and 7.0%, respectively—both at historically low levels. On the other hand, nominal GDP growth further slowed to 4.2%, and the GDP deflator remained negative for seven consecutive quarters. The combination of slower debt expansion and weak nominal growth resulted in a 10.1 percentage point increase in the macro leverage ratio—lower than the rise observed in 2023.

As the broad package of incremental policy measures took effect, the structure of macro leverage began to exhibit signs of “rebalancing” in Q4. Marginal recovery in real estate sales and a rebound in durable goods consumption lifted credit growth, slowing the pace of household sector deleveraging. Due to weak financing demand and ongoing debt repayments, the growth of leverage in the non-financial corporate sector moderated. Meanwhile, the government sector significantly increased leverage, partly to replace implicit debt with on-budget financing. Notably, from 2021 to 2024, the government leverage ratio rose by 0.8, 3.6, 5.3, and 6.1 percentage points, respectively—highlighting the increasing intensity of counter-cyclical fiscal policy over this period.

Looking ahead to 2025, the key to improving nominal economic growth lies in identifying new channels and agents for leveraging, thereby achieving macro leverage rebalancing as a means to comprehensively expand domestic demand. First, stabilizing household leverage—through improved income expectations and the mobilization of household wealth—will be essential to support developmental consumption. Second, targeted support for private firms and tech-innovative enterprises to increase leverage can help offset the contractionary effects of deleveraging among property developers and local government financing vehicles (LGFVs). Third, fiscal expansion space should be fully utilized to enhance the counter-cyclical leverage effect and strengthen risk mitigation mechanisms.

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