In the first quarter of 2024, China’s macro leverage ratio rose from 288.0% at the end of 2023 to 294.8%, an increase of 6.8 percentage points. While this increase was smaller than that of the same period in 2023, it still reflects a notable rise. Total social debt grew by 8.8% year-on-year, while nominal GDP increased by only 4.2% in Q1, contributing to the rise in the leverage ratio. If inflation continues to decline, the macro leverage ratio is likely to increase by more than 10 percentage points for the full year.

The household leverage ratio increased by just 0.5 percentage points. Residential mortgage lending continued to contract, while growth in both consumer and business loans slowed significantly. The combination of low loan growth and high deposit accumulation is expected to remain a defining feature of household balance sheets in the near term.

The non-financial corporate leverage ratio continued to rise, increasing by 5.7 percentage points. Corporate lending was the main driver of leverage growth; however, the growth of corporate bond issuance, off-balance-sheet financing, and corporate deposits—especially demand deposits—was relatively weak. This suggests that the rise in corporate leverage may be overstated to some extent.

The government leverage ratio increased by 0.6 percentage points. The issuance of local government special-purpose bonds in Q1 fell short of expectations, largely due to tighter controls on debt issuance. Structural issues surrounding local government special bond mechanisms remain unresolved.

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