China’s non-financial debt growth slows with firms and households unwilling to leverage up

Growth of outstanding debt within China’s non-financial sectors fell to the lowest level in more than two decades in the second quarter

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The Beijing-based National Institute for Finance and Development warned that China’s beleaguered property sector is having a major drag on household borrowing and consumption. Photo: AP

Published: 7:00pm, 23 Jul 2024

Growth of debt within China’s non-financial sectors fell to the lowest level in more than two decades in the second quarter as corporations and households remained reluctant to borrow, according to a Beijing-based think tank.

The non-financial sectors – mainly referring to manufacturing and services sectors – saw their outstanding debt increase by 8.3 per cent in the second quarter compared to a year earlier, representing the slowest pace since 2001, with borrowing data showing enterprises, consumers and homebuyers are shunning cheaper funding on offer.

Meanwhile, China’s macro leverage ratio in the second quarter – as measured by the proportion of debt in nominal gross domestic product – edged from 294.8 per cent in the first quarter to 295.6 per cent given the slower-than-expected economic expansion in the second quarter, which triggered calls to stabilise prices and better manage the national macro balance sheet to fend off risks.

The macro leverage ratio had stood at 287.8 per cent at the end of last year.

The macro leverage ratio has been widely used by China’s policymakers to monitor the debt risks.

We need to crank up countercyclical adjustment to bring about inflation to counter the rising leverage trend, boost business confidence and tackle risks

National Institute for Finance and Development

“China’s macro leverage ratio is now higher than other major economies, which is due to years of persistently weak price increase,” the report published by the Beijing-based National Institute for Finance and Development said on Monday.