Risks, Causes And Countermeasures Of Rising Macro Leverage Ratio In Chin

After the international financial crisis in 2008,China’s macro leverage ratio rises rapidly.This grim situation has attracted great attention of the central government.In recent years,the policy of deleveraging and preventing and defusing major risks has been landing.However,the macroeconomic consequences of rising leverage in China have not yet been studied and there is still no agreement on the main reasons for the continued rise of macro leverage ratio in China.The government relies more on tightening monetary policy to deleverage.This paper focuses on the macro impact of the rise of China’s macro leverage ratio,monetary policy and macro leverage ratio,and how external demand affects the macro leverage ratio,hoping to deepen the understanding of the causes of macro leverage ratio and provide reference for relevant policies.Based on China’s macro data in 1996Q1-2016Q4,chapter 2 empirically studies the non-linear effect of China’s leverage structure on its economic growth.Using two methods--maximum share method and classical econometric regression method,we find the following important conclusions:(1)the private sector leverage ratio has an inverted U-shaped nonlinear effect on economic growth and the turning point corresponds to the period of 2010-2013.The results for corporate sector leverage and household sector leverage are similar.(2)the public sector leverage is still in the range of promoting economic growth.(3)the private sector leverage affects economic growth through two channels--TFP and investment.Under the background of "deleveraging" and "stabilizing growth",the government should raise its leverage properly and reduce the leverage for both state-owned corporate sector and household sector.Chapter 3 uses the quarterly macroeconomic data of China from 2004 to 2015 to empirically test the effect of state-owned enterprises’(SOEs’)investment.First,this chapter finds that the ownership differentiation characteristics of leverage ratio since2008 can not show that state-owned enterprises have squeezed out non-state-owned enterprises in the financial market,because the ownership differentiation of leverage ratio is mainly caused by external and cyclical factors.Then,we summarize the characteristics of SOEs,and find that since the end of the 1990 s,on the one hand,the entry to downstream competitive industries has been liberalized,introducing competition to SOEs in those industries;on the other hand,state-owned assets have been more concentrated in the upstream natural monopoly infrastructure industry.Due to the existence of a fully competitive market,SOEs in downstream competitive industries should be efficient and will not crowd out private sector investment and consumption.Due to the existence of infrastructure bottlenecks,the SOEs’ investment in the upstream natural monopoly infrastructure industries can produce positive externalities to the downstream competitive industries,thus increasing the investment expenditure of state-owned enterprises will drive the development of private economy and thus promote economic growth.Finally,we put forward our research hypothesis and use the econometric model to test it.The empirical results show that the investment efficiency of SOEs is gradually increasing,and SOEs’ investment can significantly promote economic growth.Furthermore,increasing SOEs’ investment can significantly raise the investment of non-state-owned enterprises and residents’ consumption,and help to restrain the macro leverage ratio in the medium and long term.In addition,we find that the investment efficiency of SOEs’ investment did not fall significantly during the international financial crisis and 2012-2015.The conclusions in this Chapter suggest that the main reason for the rise of China’s macro leverage ratio in recent years is not due to the substantial increase of leverage by state-owned enterprises,but other reasons.Chapter 4 examines the impact of external demand on China’s macro leverage ratio from the empirical and theoretical levels.This is because the existing literature finds that the main reason for the continuous decline of China’s economic growth rate in 2010 is external and cyclical factors(Lin Yifu,2018).If Lin is correct,then the increase of macro leverage rate is a relatively natural result because nominal GDP is the denominator of macro leverage ratio.Moreover,this conclusion is applicable to both state-owned firms and non-state-owned firms.Furthermore,if externalities and cyclical factors are the main reasons for China’s economic downturn,then the structural problem of leverage ratio seems not to be a major reason for the rise of leverage ratio.Therefore,this perspective also provides a new possibility to understand the reasons for the rapid rise of macro leverage ratio.Fortunately,the research in this chapter achieves the expected results.The empirical results show that the decline of external demand after the international financial crisis almost completely explains the rapid rise of leverage ratio in the real sector during this period.Moreover,the external and cyclical factors mainly affect the macro leverage ratio through the aggregate demand channel.Chapter 5 summarizes the full text.As a developing and transitional economy,China’s market economic system is still far from perfect,and there is still room for further improvement in many aspects.From this point of view,an important reason for the continued rising macro leverage ratio in recent years should be attributed to the structural problems such as internal system and mechanism.Therefore,it is necessary to deepen the reform to improve the market economic system,raise the potential of economic growth and finally reduce the risk in macroeconomy and finance.But at the same time,we should also realize that the rapid accumulation of China’s macroeconomic and financial risks occurs under the background of the general deterioration of the external economic environment.For example,the developed countries in Europe and the United States have not fully recovered from the 2008 international financial crisis,leading to the emerging market countries generally facing the dilemma of insufficient demand and economic downturn.In this case,on the one hand,we should continue to deepen the supply side structural reform and release the reform dividend;on the other hand,we need to moderately expand the aggregate demand to deal with the externality and cyclical problems,so as to maintain China’s future economic growth in a reasonable and stable range.