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The Calculation of China’s Macro-Leverage Ratio: Problems and Policy Options(No.159, 2017)


By Zhu Hongming, Research Institute of Finance, DRC & Han Ruoyu, School of Economics, Fudan University

Research Report,No.159, 2017 (Total 5234) 2017-11-27

Abstract: Deleveraging is one of the major tasks of the supply-side structural reform. A precise and scientific estimation of China’s macro-leverage ratio (outstanding debts vs. GDP) holds great importance to the objective evaluation of deleveraging progress and outcome as well as to the intensity and frequency of deleveraging so as to enable us to take proactive, steady and effective measures to advance this work. At present, a large number of estimations both at home and abroad have been made on China’s macro-leverage ratio, but there are five problems with their calculation methods, namely the improper extraction of data at source, the over-calculation of debt items, the under-calculation of debt items, the inadequate categorization and the repeated calculation. These problems would lead to inaccurate calculation of the absolute macro-leverage ratio, and more importantly make it hard to capture timely the major marginal changes in deleveraging, thus causing serious errors in making key judgments over the progress, outcome and weak points of deleveraging. This paper takes as an example China’s macro-leverage ratio calculation made at the end of June 2017, expounds the mistakes prone to be made in leverage ratio calculation, the causes of such mistakes and relevant impacts, and raises policy options on improving the calculation of the general leverage ratio and the leverage ratio of various departments.

Key words: macro-leverage ratio, outstanding debts, non-financial sectors, the corporate sector, the residential sector