Stabilizing macro leverage ratio a long-term choice for China

China's macro leverage ratio saw a phased rise in 2020, because of the impact of the COVID-19 pandemic, but it is now on a stable track after the tendency was effectively curbed in 2021.

The pandemic brought the global economy to a standstill for a time, with economic growth remaining negative throughout 2020.

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

After rising for three quarters in 2020, China's macro leverage ratio began to decline from the fourth quarter onwards, and the growth in the whole of 2020 was much lower than the overall level of all countries and regions reported by the Bank for International Settlements.

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

At present, China's economy faces the triple downward pressures of shrinking demand, supply shock and weakening expectations. However, China's economy is highly resilient and its long-term fundamentals have not changed. Generally speaking, when the economy faces downward pressures, moderately loose macrocontrol policies are needed to stabilize economic growth, thus raising the leverage ratio.

In the face of the triple pressures, stabilizing the macro leverage ratio requires China to both have a scientific understanding of the basic 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.

In making macro policies, the country must adopt a systematic approach and take into account counter-cyclical as well as aggregate and structural factors. It must not only work hard to keep the economy operating within a proper range and strengthen its economic foundation, but also to keep the macro leverage ratio stable to effectively guard against any possible financial risks.

- Economic Daily