In the first quarter of 2023, China’s macro leverage ratio rose markedly, increasing by 8.6 percentage points from 273.2% at the end of 2022 to 281.8%. While total social debt growth remained broadly stable, the main driver of the leverage ratio increase was weak nominal economic growth. For the full year, the macro leverage ratio is expected to rise by around 8 percentage points, exhibiting a “high early, stable later” trajectory.

The household leverage ratio returned to an upward trend, primarily driven by personal business loans, while residential mortgage lending remained subdued. As the real estate market continues to recover, household leverage may increase further.

The non-financial corporate sector posted the largest increase in leverage, with the ratio rising by 6.1 percentage points to reach an all-time high. However, the rise in corporate debt has not been matched by a corresponding increase in investment. This reflects a combination of factors, including lags between borrowing and investment, debt accumulation due to principal and interest repayments, and possibly the circulation of idle funds within the financial system.

The government sector leverage ratio increased only modestly, indicating that the policy goal of “intensifying fiscal support and enhancing efficiency” has had limited effect thus far. The pace of front-loaded bond issuance fell short of expectations. Moreover, the special-purpose bond instrument available to local governments has inherent limitations, making it difficult to strike an effective balance between stabilizing growth and managing risks.

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