Driven by economic recovery, the macro leverage ratio declined in the first quarter of 2021, continuing the deleveraging trend that began in the fourth quarter of 2020.

The household leverage ratio experienced a marginal decline—the first quarterly drop since 2012. However, given the rapid expansion of personal business loans and the buoyancy of the real estate market, it will be difficult for the household leverage ratio to fall on an annual basis.

The leverage ratio of the non-financial corporate sector continued to decline, registering a cumulative drop of 3.8 percentage points over three consecutive quarters. A further decline is anticipated in the coming quarters.

The government sector leverage ratio posted a notable decline in the first quarter, primarily due to the timing of bond issuance. Nevertheless, it is expected to rise over the course of 2021.

With the economic growth rate recovering and the macro leverage ratio trending downward, efforts should be made to seize this window of opportunity to advance structural reforms. Priority should be given to addressing “grey rhino” debt risks, removing implicit government guarantees, dispelling expectations of state-owned enterprise (or local government) bailouts, gradually establishing a market-oriented risk pricing mechanism, and fostering a sustainable debt accumulation model compatible with the new development paradigm.

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