Abstract:
This paper analyzes the relationship between credit expansion and economic growth. In essence, credit facilitates growth through its allocation to real economic activities; however, when misallocated, excessive credit fails to generate faster growth. Drawing on 150 years of historical data from major advanced economies—including the United States, the United Kingdom, Japan, and Germany—the study finds that leverage ratios exhibit long-term cyclical behavior, typically fluctuating over 30–40-year periods. Since the start of China’s reform and opening-up over four decades ago, the country’s macro leverage ratio has approached the peak of a full cycle, making deleveraging an inevitable policy choice.
From a policy perspective, China’s deleveraging process should proceed steadily, with compulsory market clearing as a prerequisite. Caution is warranted against attempting deleveraging in overly accommodative monetary conditions. Overall, a relatively tight monetary environment should be maintained to support sustainable adjustment.

Keywords: Macroeconomy; Credit; Leverage Ratio; Economic Growth