The macro leverage ratio fell to 265.4% in the second quarter, and there are still hidden worries under the "perfect deleveraging"

  Author: Duan Siyu 

  Given the rapid growth of nominal GDP, the leverage ratio of residents remains basically stable, indicating that the growth of residents’ debt is still fast.

It is also necessary to be wary of corporate deleveraging triggers a balance sheet recession.

  As the economy resumes growth, my country's macro leverage ratio continues to decline.

  A few days ago, the National Laboratory for Finance and Development (NIFD) released the "Report on China's Leverage Ratio in the Second Quarter of 2021" (hereinafter referred to as the "Report").

According to the "Report", my country's macro leverage ratio fell by 2.6 percentage points in the second quarter of this year to 265.4%; in the first half of the year, it fell by 4.7 percentage points. The "Report" evaluated that this achieved a "perfect deleveraging" in the sense of Dario. .

  Among them, the non-financial corporate sector's leverage ratio fell the most, from 161.4% at the end of the first quarter to 158.8%, a drop of 2.6 percentage points; a total of 3.5 percentage points decreased in the first half of the year, and it has fallen for four consecutive quarters.

In contrast, the leverage ratio of residents remained basically stable, the leverage ratio of the government declined slightly, and the deleveraging of the financial sector continued.

  Many industry insiders interviewed by a reporter from China Business News said that the decline in leverage in the second quarter was mainly related to the recovery of economic growth.

On the one hand, the growth of real economic debt has basically returned to normal. On the other hand, the growth rate of nominal GDP has remained at a relatively high level, which in turn has contributed to a fall in the leverage ratio.

Looking forward to the second half of the year, it is expected that the macro leverage ratio will remain stable with a downward trend.

  Tang Jianwei, chief researcher of the Bank of Communications Financial Research Center, told reporters that considering the debt growth rate and economic growth, the macro leverage ratio may stabilize and slightly fall in the third quarter and even the second half of the year.

  The deputy director of the CITIC Securities Research Institute clearly told reporters that the macro leverage ratio is expected to stabilize in the third quarter.

From the molecular point of view, there is limited room for further decline in social financial growth; at the denominator, economic growth and inflation will gradually return to a normalized level. Therefore, it is expected that the absolute level of macro leverage may stabilize in the future.

  Liu Lei, secretary-general of the NIFD National Balance Sheet Research Center, believes that the leverage ratio will decline slightly in the second half of the year, but the rate of decline will slow down, and the leverage ratio may reach a level of about 263% at the end of the year, a decline of about 8 percentage points throughout the year.

  Macro leverage ratio continued to decline in the second quarter

  The "Report" shows that as of the end of the second quarter, my country's macro leverage ratio fell from 268.0% at the end of the first quarter to 265.4%, a drop of 2.6 percentage points.

In addition to the decline in the first quarter, in the first half of 2021, the overall macro leverage ratio fell by 4.7 percentage points.

  So far, my country’s macro leverage ratio has declined for three consecutive quarters, and the rate of decline has increased quarter by quarter, from the highest point of 271.2% at the end of the third quarter of 2020 to 265.4% today, a total drop of 5.8 percentage points. It's obvious.

  Ruan Jianhong, Director of the Survey and Statistics Department of the People’s Bank of China, said at a recent press conference that in the first half of this year, maintaining a stable macro leverage ratio achieved remarkable results. The macro leverage ratio in the first quarter of this year was 276.8%, compared with the end of last year. 2.6 percentage points lower. Judging from the economic recovery and debt growth in the second quarter, it is expected that the macro leverage ratio will continue to remain stable.

  Liu Lei analyzed that economic acceleration is the most important factor in quarterly deleveraging.

From the molecular end of the leverage ratio calculation formula, the second quarter debt growth rate was 2.2%. Although compared with the same period in 2020, it has fallen sharply, but it is basically the same as the second quarter growth rate in 2018 and 2019, reflecting the entity in the second quarter of this year. Economic debt growth has basically returned to normal.

  Looking at the denominator again, the nominal GDP growth rate in the second quarter remained at a very high level, whether it was a year-on-year growth rate or a month-on-month growth rate.

"It can be said that, in terms of nominal value, the growth rate in the second quarter exceeded expectations, and it is this unexpected growth that accelerated the decline in macro leverage." Liu Lei said.

  Mingming also stated that since the beginning of this year, active credit tightening has led to a rapid decline in the growth rate of social financing from 13.3% at the end of last year to 11% in June. The growth rate of debt in various sectors has slowed down significantly; while the nominal GDP has recovered after the epidemic and has been low. The base and re-inflation continue to be at a high level. From the calculation formula, this is reflected in the decline of the macro-leverage ratio.

"Actually, according to our calculations, the absolute level of macro leverage in the second quarter will fall further than that in the first quarter, but it may be a low point during the year."

  Regarding the performance of the macro-leverage ratio in the first half of this year, the "Report" also commented that it has achieved a "perfect deleveraging" in the sense of Dario.

Dario once proposed three forms of deleveraging: deflation deleveraging, inflation deleveraging and perfect deleveraging.

  "Perfect deleveraging" refers to the fact that currency support is moderate, the real economy grows, and the nominal growth is higher than the nominal interest rate, and finally the deleveraging is realized.

The key is that the nominal economic growth rate is relatively high, and it will not cause a large increase in the general price level.

"In this sense, in the first half of this year, we achieved a phased "perfect deleveraging": faster nominal GDP growth brought a decline in the leverage ratio, while at the same time, the general price level (measured by CPI) remained at a low level. ." "Report" mentioned.

  The largest decline in the non-financial corporate sector

  In terms of sub-sectors, whether it was the second quarter or the first half of the year, compared with other sectors, the non-financial corporate sector had the largest decrease in leverage.

  Data show that in the second quarter of 2021, the leverage ratio of non-financial companies fell by 2.6 percentage points, from 161.4% at the end of the first quarter to 158.8%; in the first half of the year, it dropped by 3.5 percentage points, and it has fallen for four consecutive quarters.

At present, the leverage ratio of non-financial companies is returning to the level at the end of 2019.

  Followed by the financial sector. In the second quarter, the asset-side financial leverage ratio fell from 52.8% at the end of the first quarter to 51.3%, a decrease of 1.5 percentage points, and the first half of the year fell by 2.9 percentage points; the liability-side financial leverage ratio under the statistical standards From 62.3% at the end of the first quarter to 61.7%, a decrease of 0.6%, and a decrease of 1% in the first half of the year.

  In contrast, the rate of decline in the leverage ratio of the residential sector was relatively small. The rate of decline in the second quarter was the same as that of the same quarter, both 0.1%, and a total of 0.2% in the first half of the year.

According to the analysis of the "Report", despite the rapid growth of nominal GDP, the leverage ratio of residents is still basically stable, indicating that the growth of residents' debt is still fast.

  In terms of government leverage ratio, the second quarter rose by 0.1 percentage point, from 44.5% at the end of the first quarter to 44.6%, but the entire first half of the year fell by 1 percentage point.

Liu Lei said that compared with the second quarter of previous years, the increase in government leverage in the second quarter of this year was not large, and it is expected that there will be a greater increase in the second half of the year.

  Obviously, the continuous deleveraging of the non-financial corporate sector is not difficult to understand.

Obviously told the CBN reporter, "We have reminded before that in this round of tight credit, the non-financial corporate sector will take the lead in pressure." This is because during this round of tight credit, the main contraction is non-standard financing and bonds. Financing, while medium- and long-term credit has maintained a relatively high level of prosperity. As a result, the scale of non-financial corporate debt is most affected. The market's concerns about default risks also restrict the issuance of corporate and urban investment bonds.

  Tang Jianwei also said that another reason may be that this year's economic recovery has driven the overall profit growth of the company. In this process, the company's debt ratio and leverage ratio will decline to a certain extent.

This is also reflected in the data. In the first two quarters of this year, the macroeconomic recovery trend is relatively favorable. The year-on-year growth rates of cumulative revenue and cumulative profits of industrial enterprises from January to May are both higher, exceeding 30% and 80%, respectively. The growth rate of investment has declined, among which, the growth rate of infrastructure investment has declined the most.

  However, the "Report" also mentioned that it is necessary to be wary of corporate deleveraging triggering a balance sheet recession.

In the context of deleveraging, companies are unwilling to increase investment after gaining profits, but give priority to debt repayment and reduce the scale of new borrowing.

As a result, the leverage ratio of the corporate sector continues to decline, thus contributing to the decline in the macro leverage ratio.

However, if companies focus on repairing their balance sheets and repay their debts if they have profits, without new investment, it may trigger a balance sheet recession.

  There are still hidden worries behind "perfect deleveraging"

  Overall, although the "perfect deleveraging" was achieved in the first half of the year, there are still hidden worries behind it.

  According to the "Report", this is mainly reflected in four aspects: First, the gap between PPI and CPI has widened, squeezing the profits and survival of downstream industries; Second, companies continue to deleverage significantly, worrying that this will trigger a balance sheet recession; Third, the recovery of the real economy has slowed down, consumption has fallen short of expectations, infrastructure is sluggish, and export growth has begun to decline; fourth, local financing platforms are mostly zombie companies, and the risk of default is relatively high.

  Among them, regarding the widening gap between PPI and CPI, Liu Lei analyzed to reporters that this will obviously affect downstream companies.

Because downstream companies generally use PPI to calculate costs and CPI to calculate revenues, the gap between the two prices increases the cost of these companies, but it is difficult to transmit to the final product price, resulting in a decline in corporate profits.

  Furthermore, from the perspective of industrial enterprises, Liu Lei said that the proportion of profits of upstream enterprises has increased while the proportion of profits of downstream enterprises has declined.

Although the overall profit growth rate of industrial enterprises is very large, if exports weaken, downstream enterprises may be under greater pressure.

Many downstream companies are small, medium and micro enterprises. If these companies are under pressure and withdraw from the market, it will be detrimental to economic recovery.

  In addition, in terms of local financing, the "Report" stated that most local financing platforms can be classified as zombie companies, and the risk of default on urban investment bonds will increase.

In the next five years, urban investment bonds will face the pressure of concentrated maturity redemption, with an average annual debt repayment of 2.55 trillion yuan.

2021 will usher in a peak of urban investment debt repayment.

The asset profitability of the financing platform is relatively weak, and its own debt solvency is insufficient.

  Looking forward to the trend of the macro leverage ratio in the third quarter and the second half of the year, Tang Jianwei analyzed that it is expected that the macro leverage ratio may stabilize and decline slightly.

This is mainly affected by two factors. First, from the perspective of economic growth, this year’s economic growth rate may have been high and then low. The first quarter was the high point of the year, and the next three quarters fell quarter by quarter, and the economy grew in the fourth quarter. The rate may return to about 6%, which also means that compared with the first half, the economic growth rate will not rebound sharply in the second half of the year.

  Secondly, Tang Jianwei emphasized that the previous process of rapid decline in the scale of social financing has ended, and the overall stability may be stabilized in the second half of the year, with a slight rebound in the fourth quarter.

Therefore, comprehensive social financing and economic performance, "the macro leverage ratio in the third quarter and even the second half of the year may show a trend of stabilization and a slight fall."

  Mingming also analyzed that the overall performance of the macro leverage ratio may stabilize in the future.

On the one hand, there is very limited room for further downside of the molecular terminal social financing growth, and there will be some support after the issuance of government bonds. The growth rate of social financing at the end of the year may be almost the same as the current one. In other words, the credit environment will switch from tight credit to stable credit; On the other hand, on the denominator end, economic growth and inflation will gradually return to normalization, and the extreme base effect will also diminish. Therefore, we tend to believe that the absolute level of macro leverage may stabilize in the second half of the year.

  Liu Lei believes that based on the estimation of the 12.1% and 10.3% growth rates of nominal GDP in the third and fourth quarters, it is expected that the macro leverage ratio will decline slightly in the second half of the year, but the rate of decline will slow down, and the leverage ratio will reach about 263% at the end of the year. The level has dropped by about 8 percentage points throughout the year.

Keywords: