In 2021, China’s macro leverage ratio declined from 270.1% at the end of 2020 to 263.8%, marking a year-on-year decrease of 6.3 percentage points—a significant deleveraging. Nominal GDP grew by 12.8%, while aggregate debt increased by only 10%, approaching the lowest annual debt growth rate since 1991 (the record low was 9.6% in 2018). However, given that the leverage ratio surged by 23.6 percentage points in 2020, the 2021 level still stands 17.3 percentage points higher than that of 2019. A return to pre-pandemic levels will require more time.

Compared with the broad-based monetary and fiscal expansion adopted by major advanced economies, China’s macroeconomic policy stance was relatively restrained, emphasizing cross-cycle adjustment and a dynamic balance between stabilizing growth and containing risks. In light of intensifying economic headwinds from the so-called “threefold pressures” (demand contraction, supply shocks, and weakening expectations), previous policy restraint has created room for future policy easing.

Among all institutional sectors, the household sector has witnessed the fastest increase in leverage. Household leverage rose from below 5% in 2000 to 62.2% at present, surpassing the level of Germany and approaching that of Japan. Although household debt risks remain broadly manageable, rising internal divergence within the sector is a growing concern. A key lesson from the U.S. subprime mortgage crisis is that excessively high household debt, especially when disproportionately concentrated among low-income groups, can trigger systemic risks. The structural imbalance in leverage distribution within the household sector was one of the underlying causes of that crisis.

In 2022, China’s macro leverage ratio is projected to rise from the current 263.8% to approximately 269%, implying a full-year increase of around 5 percentage points. As the economy faces increasing downward pressure, debt growth—the numerator in the leverage ratio—is expected to accelerate due to pro-growth policies. At the same time, in the context of the 14th Five-Year Plan and beyond, the shift to a lower growth regime will likely persist, slowing the denominator (GDP growth). With debt rising and growth moderating, the macro leverage ratio is set to increase. We thus anticipate that under the weight of “threefold pressures,” China’s macro leverage ratio may enter a new upward cycle, with economic growth remaining the most critical determinant of its trajectory.

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