China's leverage ratio falling, says PBOC chief

Gov't controls in financial sector seen taking effect

China's overall leverage ratio has started to fall, although not by that much, Zhou Xiaochuan, governor of the People's Bank of China (PBOC), China's central bank, said during a seminar in the U.S. on Sunday, according to a post published on the official website of the PBOC on Monday.

"China has entered a stage of deleveraging since the beginning of this year. The trend [of deleveraging] has already been formed," he noted at the seminar. But he also stressed that overall, China's leverage level is still high.

Analysts the Global Times talked to on Monday said the deleveraging efforts taken by the central government have mostly been focused on the financial sector this year.

"China's financial leverage has indeed fallen, with the help of strong management measures such as standardizing the interbank business and wealth management business," Liu Dongliang, a senior analyst at China Merchants Bank, told the Global Times on Monday.

Liu Xuezhi, a senior analyst at Bank of Communications, also noted that the government's monetary policies this year have been tighter compared with 2016, as the government increased its grip on foreign currency flows and the financial market.

Data from the PBOC showed that M2, a broad measure of money supply that covers cash in circulation and all deposits, reached about 166 trillion yuan ($25 trillion) by the end of September, up 9.2 percent year-on-year, compared with growth of 11.5 percent by the end of September 2016, according to data revealed by the PBOC on Saturday.

But Liu Dongliang said that in the real economy, the leverage level is still rising currently. Leverage in the real economy is mainly measured by the ratio of debt to GDP.

China's debt to GDP ratio reached 137 percent by the end of 2016, up from 126 percent by the end of 2015, domestic news site jiemian.com reported in July.

Liu Dongliang said that it's not easy for the government to launch deleveraging efforts in the real economy. "The government wouldn't want to interfere too much in company strategies. Also, different industries should be treated differently, which makes thing more complex," he noted.

Liu Xuezhi acknowledged that China's debt to GDP ratio is relatively high among major global economies, but still lower than countries like the U.S. and Japan. "Besides, it's hard to evaluate the data. It's not necessarily the case that higher debts would bring about higher risks," he noted.

According to Liu Xuezhi, China's deleveraging efforts have caused concerns about whether they would hurt the dynamics of the domestic economy, which has been burdened with downward pressure in recent years. "But such concerns have proved unnecessary," he told the Global Times Monday.

The country's economy has started to recover since the second half of 2016, with GDP growth reaching 6.9 percent in the first three quarters this year, compared with 6.7 percent growth in 2016.