A bank teller in Taiyuan, Shanxi province, counts renminbi notes. [Photo/China News Service]

China’s macroeconomic leverage ratio has seen a gradual increase in 2020, due to the impact of the COVID-19 pandemic, but is now on a stable track after the trend was effectively curbed in 2021.

The pandemic crippled the global economy for some time, with economic growth remaining negative throughout 2020.

The ultra-flexible macro-control policies implemented by many countries in response to the pandemic have pushed up their macro leverage ratios rapidly. China has, however, adopted a sound, prudent and flexible monetary policy with precise political guidelines, coordinating its pandemic prevention and control measures with its economic and social development.

After increasing for three quarters in 2020, China’s macroeconomic leverage ratio began to decline from the fourth quarter, and growth for the whole of 2020 was well below the aggregate level of all countries and regions reported by the Bank for International Settlements.

Keeping the macroeconomic leverage ratio stable is a long-term choice for China. Since 2016, focusing on structural reform on the supply side, China has actively encouraged deleveraging and adopted various measures to effectively curb the rapid growth of the macroeconomic leverage ratio, thus achieving the first results in prevention and defusing certain major financial risks. These measures have also left more room for China to respond to downward pressures on the economy and use macro-control policies to stabilize economic growth.

At present, the Chinese economy is facing the triple downward pressure of falling demand, supply shock and weakening expectations. However, the Chinese economy is very resilient and its long-term fundamentals have not changed. Generally speaking, when the economy faces downward pressures, moderately flexible macro-control policies are needed to stabilize economic growth, thereby increasing the leverage ratio.

In the face of triple pressures, stabilizing the macro leverage ratio requires that China both have a scientific understanding of the fundamental stability of the macro leverage ratio and adopt a flexible, appropriate and scientific policy approach to strike a long-term balance between stable growth and risk prevention.

When developing macroeconomic policies, the country should take a systematic approach and take into account countercyclical factors as well as aggregate and structural factors. It must not only work hard to keep the economy functioning within an appropriate range and strengthen its economic base, but also to keep the macroeconomic leverage ratio stable in order to effectively hedge against any possible financial risk.

– Daily economic


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