Yi Xianrong: Is Chinas leverage high or low?

Author: Yi Xianrong

In the modern market economy system, the vast majority of economic entities will regard loose financing pipelines as the most convenient and lowest cost of economic growth.Enterprises have achieved investment expansion through financing, and residents use financing through financing for current consumption.Especially after the outbreak of the US financial crisis in 2008, the central banks of various countries led by the Federal Federation will use this rule to make it handy, allowing the US economy to collapse to a growing track.However, from the perspective of modern financial history, the occurrence of any financial crisis is related to excessive leverage, or all related to excessive credit expansion.In a country or a region, as long as the credit expansion is excessive, it does not cause the financial crisis, it is just a matter of time.

In 2008, the US financial crisis was destructive to the economy. For the market, it would definitely be vivid, but the governments and the central banks of most countries seemed to forget these.There is no reunion and prevalence.For example, US President Trump asked the Federal Federation to reduce the benchmark interest rate of the central bank to the level of negative interest rates.Recently, the National Financial Association (IIF) issued a report that global debt increased by 7.5 trillion US dollars in the first half of this year, refreshing the highest record of $ 250.9 trillion, and China and the United States accounted for more than 60%of debt in the first half of the year.Given the pace of global debt increases, there is no sign of slowing down, IIF expects that global debt will exceed $ 255 trillion by the end of the year.In the same period, the debt of emerging markets also reached a new record of 71.4 trillion dollars, which is equivalent to 2.2 times that of the domestic GDP.It can be said that over -credit expansion or severe debt soaring is definitely the source of the next global financial crisis.This is just a matter of time, and no one can resist the market law.

However, excessive credit expansion is both the driving force of economic growth and the root cause of the outbreak of the financial crisis. So where is the boundary of credit expansion?What indicators are used to measure?Due to the huge differences in the economic environment and financial market conditions of various countries, because the factors that trigger each financial crisis will be quite different, so far, countries around the world have not found a general indicator of measures to measure crisis, and the financing leverage rateIt is an important observation tool.On November 13th, President Powell, Powell, said in a testimony of the joint economic committee of Washington, saying that it is difficult to know what is happening in the Chinese economy, but it also believes that China's deleveraging operation is one of the reasons for the slowdown of global growth.In other words, the IIF report believes that China's credit expansion is too fast or the leverage is too high, while the chairman of the United States Federation Powell believes that China's deleveraging is one of the important reasons for the slowdown of global economic growth.Therefore, how to judge the current leverage of China is the key to understanding the current Chinese economic and financial market situation.

Regarding the situation in China's financial market, some people have recently said that China's economic reform and opening up has been more than 40 years, but China has never had a financial crisis. It means that this special financial market system in China can break the iron law or law of human financial market iron laws or laws.It is not easy to break out the financial crisis.In fact, this is just the frog at the bottom of the well, neither understands history nor understands the reality of the financial market.

Because for finance, if there is no credit expansion, there is no market, and it is impossible to have a financial crisis.Comparing the planned economy before China's economic reform and opening up, there is no financial services for enterprises and residents, and there is no credit expansion. Where can I come from the financial crisis?Even after China's economic reform and opening up in 1978, the overall leverage ratio of China's economy in 2005 did not exceed 150%, and the leverage rate of residents at that time was only about 15%.As long as the leverage is in a reasonable interval, the financial crisis will certainly not happen.The rapid rise in China's leverage has begun in 2009. In 2009, China's leverage ratio increased by more than 30 percentage points. Since then, China's leverage ratio has risen out of control.By 2012, China's leverage ratio exceeded 200%. In the next few years, China's leverage ratio was not high, only higher.

It can be said that China's financial crisis broke out?The leverage rate after 2009 depends on how this high leverage is dealt with.Therefore, from 2017, deleveraging is the most important measure for the Chinese government to prevent financial risks.This is also China deleveraging by Powell, chairman of the Federal Federation.

China ’s deleveraging has started in the second quarter of 2017. In the 10 seasons since this season, non -financial corporate leverage rates have rebounded in two seasons (including 3.3 percentage points in the first quarter of 2019).The rest of the seasons declined, from 161.4%in the first quarter of 2017 to 155.6%in the third quarter of this year, a total of 5.8 percentage points, but in general, the leverage of the entire real economy increased.Especially since 2019, the leverage of China's real economy has risen to more than 250%.During this period, the leverage rate of residents increased from 50%to 54%, and the leverage rate of state -owned enterprises and the government's leverage rates increased.Therefore, the deleveraging since 2017 has had a significant impact on Chinese private enterprises, but it has little effect on other debt subjects.Therefore, President Powell, the chairman of the Federal Union, said that he could not understand that the Chinese economy could be real.

Recently, the China Institute of Social Sciences and Development Laboratory of the Academy of Social Sciences Recently, the China Leverage Rate Report (hereinafter referred to as the report) of the third quarter of 2019 pointed out that the macro leverage ratio rate in the first three quarters of this year was 5.1, 0.7, and 1.6 percentage points, respectively, and the cumulative increased increased.7.4 percentage points. Looking at the whole year, China's macro leverage ratio should increase at 8-10 percentage points.The report believes that the increase in this leverage rate is 2-3 percentage points lower than the sharp climbing of macro leverage rates from 2008-2016.With reference to the experience of steady growth in the past, such an increase is not high; in fact, in 2009 alone, the increase in macro leverage rates reached 31%.In other words, the impact of China's deleveraging by Powell, the chairman of the Federal Federation, basically does not exist on the global economic recession.

This not only manifests that the scope of deleveraging in China in 2017 is very small, but also the decline in leverage is also very limited.What is even more important is that the macro leverage ratio starting from 2019 has risen completely. As far as the government's wishes of the government, the People's Bank of China, the enterprise and the market, the increase in China's macro leverage in 2019 is not enough.The amplitude should be higher.The above report is the main representative of this view.

There are three reasons for the report. First, China's entire debt ratio is within the controlled range in the national balance sheet.Second, compared with the world, the leverage rate of Chinese residents and the government's leverage are not high, and they have greater ability to undertake debt.However, these three aspects are built on the assumptions of Chinese assets that are absolutely held by the state and the government can make house prices only rise and not fall, and keep housing prices and eternal stability.Imagine that in the past 20 years, the government tries its best to the country's housing prices, so that the total market value of Chinese housing is much greater than the sum of the total market value of the total housing in the United States, the European Union and Japan. How many problems can Chinese residents' liabilities and government liabilities?

Taking the leverage rate of residents as an example, the report analysis has continued to rise since this year, but the year -on -year growth rate has declined slightly.In the first three quarters, the leverage rates of residents increased by 1.1%, 1.0%, and 1.0%, respectively, from 53.2%at the end of 2018 to 56.3%in the third quarter of 2019, a cumulative increase of 3.1 percentage points.In the 10 years of 2008 to 2018, an average annual increase of 3.5%, the growth rate of this year may exceed the average of the past 10 years.In other words, the leverage rate of Chinese residents this year is still in a rapid rise.At the same time, the leverage rate of Chinese residents currently reaches 56%, and comparison with the international residents is of course in a safe range.For example, the current leverage of residents in Canada is 167%, and the United States and Japan are close to 100%.But these two concepts are almost meaningless.

Because, the first is that the population structure of Chinese residents is completely different from European and American countries.At present, China's urbanization rate is only about 55%, that is, more than half of the population in China is rural residents.The serious urban and rural segmentation not only makes the income level of Chinese rural residents different from urban residents, but the living conditions of rural residents are also very different from cities.In this case, the vast majority of rural residents are unable to enter the city to buy housing, and they will not use leverage to buy housing in cities.Also, before the commercialization of housing, some residents (especially third- and fourth -tier cities) in Chinese cities have obtained housing through planning distribution.Although these housing conditions are not very good, there is no problem to meet their basic residence.In addition, after their retirement, their income is limited, they will not enter the housing market, let alone use leverage to enter the housing market.If these two types of population are eliminated, the leverage rate of Chinese residents will rise sharply.

Because by the end of September, the scale of Chinese residents' loans reached 53.6 trillion, of which consumer loans were 42.4 trillion, accounting for 79%; operating loans were 11.2 trillion, accounting for 21%.Among the consumer loans, the short -term consumer loan is 9.5 trillion, accounting for 18%of the total number of residents' loans, and 32.9 trillion in medium and long -term consumer loans, accounting for 61%.It reached 28.1 trillion, accounting for 89%of residents' medium- and long -term loans.The year -on -year growth rate of residents' total loans was 18.2%at the end of 2018, and in 2019, it was still at a high of 15.9%.In recent years, the growth of Chinese residential housing mortgage loans has been at a very high level of growth.The high level of leverage in Chinese residents is linked to the rise and fall of house prices.

According to the 70 large and medium -sized cities issued by the National Bureau of Statistics, the report is reported to estimate the level of residents in various regions.Among the 34 cities of statistics, there are 5 cities with a leverage of residents than 80%, namely Hangzhou, Xiamen, Wenzhou, Haikou, and Shenzhen.These cities are also one of the fastest -growing cities in China.The rapid rise in house prices will inevitably lead to unlimited housing supply. Local governments auction unlimited land, real estate developers build unlimited housing.The wealth of residents, enterprises and governments has grown, but excess housing has followed.According to statistics, China's real estate has been severely surplus. Taking Shenzhen, which has the highest housing prices in the country, as an example, if calculated based on the residential area of 30 square meters per capita, the total housing area of a city has allowed hundreds of millions of people to live.In 2018, the average property price in Shenzhen reached 34 times the average annual income of Chinese families.

In other words, China's leverage ratio is high or low, and it cannot be measured by a so -called international general indicators. Just as a international real estate bubble indicator cannot be used to measure China's real estate bubbleThe rate is based on the prerequisite for housing prices to rise and not to fall, and the government is capable of ensuring the stable housing price stability. It is based on the total market value of China's total housing reached 68 mega dollars.If China's house prices have fallen rapidly, especially those cities that push house prices to sky -high -level cities fall, those who have the most vulnerable risks will face huge financial risks.The leverage crisis will erupt.This is the core of the problem.

(The author is a professor at the School of Economics of Qingdao University)