In 2023, China’s macro leverage ratio rose sharply. On the one hand, total debt in the real economy grew by 9.8% year-on-year, with household and corporate debt increasing by 6.9% and 9.1%, respectively—remaining at relatively subdued levels. On the other hand, the macro leverage ratio rose by 13.5 percentage points over the year, from 274.3% at the end of 2022 to 287.8%, exceeding the increase recorded in 2022. The main reason for this apparent discrepancy was the deceleration of nominal economic growth. In 2023, nominal GDP growth further declined to 4.6%, while the general price level experienced deflation.

The government sector saw the largest leverage expansion, with its leverage ratio rising by 5.3 percentage points over the year—from 50.6% at end-2022 to 55.9%. Central government debt increased by more than RMB 4 trillion, while local government debt rose by RMB 5.7 trillion. Government debt grew by 15.7% year-on-year, outperforming the previous two years and significantly outpacing debt growth in the household and corporate sectors. The government sector thus became the primary driver of debt expansion.

Looking ahead to 2024, the macro leverage ratio is expected to continue rising. If total social debt grows at 10% and nominal GDP increases by 6%–7%, the macro leverage ratio would rise by less than 10 percentage points. However, if nominal GDP grows by only 5% while debt expands at 10%, the leverage ratio could increase by as much as 14 percentage points—pushing the full-year ratio above 300%. Therefore, sustaining and improving nominal GDP growth is of paramount importance.

...

For the full content of this report, please refer to the attached document.