Overall leverage ratio of China’s real economy in 2018 was around 243.7%, among which the China’s state-owned enterprises (SOE) leverage ratio was 103% and government leverage ratio was 37%. However, if considering off-balance financing funded by local government financing vehicles (LGFVs) that were often packaged as fund products and sold to individual investors, the leverage for local government jumped to as high as 70%.
What lies behind this problem is essentially the trade-off between a painful yet necessary deleveraging plan (and scale back on LGFV) and sustaining the growth of Chinese economy. In light of global concerns on Chinese economy outlook, any slight hint of decline in investment could pause any progress on deleveraging.
What is a viable way for the local government to peacefully deleverage? What will be the role, if any, of central government and private sector in this process? What are some of the existing of deleveraging and what are some challenges they have faced? The Economics Panel of the Graduate China Forum, co-hosted by the Becker Friedman Institute, invited an exchange of thoughts to discuss and answer some of the most relevant questions around this topic (see agenda below). The full Graduate China Forum Agenda can be found here.