In the first quarter of 2019, China’s macro leverage ratio jumped by 5.1 percentage points. In the second quarter, however, the growth slowed to 0.7 percentage points. In the first half of 2019, China’s leverage ratio increased by a total of 5.8 percentage points. China’s macro-leverage ratio had been tamed from 2017 until the first half of 2019, when another spike occurred. This increase marks a significant shift in the trend of China’s leverage ratio against the backdrop of domestic and international shocks.

Notably, the sharp increase in the macro-leverage ratio in Q1 2019 corresponds to China’s better-than-expected economic performance then. Yet the stalling growth of leverage ratio in Q2 2019 will weigh on future economic growth. We foresee that single-quarter leverage ratio growth of 0.7 percentage points will be hard to sustain. To undergird growth, therefore, we should tolerate a moderate increase in the leverage ratio, particularly the central government’s macro-leverage ratio, and strike a dynamic equilibrium between shoring up growth and stabilizing the leverage ratio, giving priority to institutional, structural and efficiency improvements.

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