China's debt stabilized in the second quarter, allowing for policymakers to take steps to boost waning growth in the next few months, China Daily reported, citing the National Institution for Finance and Development, a national think tank.
China's macro leverage ratio, the percentage of debt held by the government, household and corporate sectors to total GDP, grew by 0.7 percentage point to 249.5% of GDP, down from last quarter's 5.1 percentage point growth, said the report.
This allows for the country to use fiscal measures to bolster expansion in the face of an economic downturn. "Stabilizing economic growth should be prior to deleveraging", said Li Yang, head of the institution.
Policymakers are expected to increase the quota of local government bonds at the start of the fourth quarter to sustain annual GDP growth above 6%, while maintaining tight control on local governments' hidden debt; off-balance-sheet borrowings that local governments back.
The issuing of these bonds allows local governments to boost investment as part of fiscal spending, according to Chang Xin, a professor of the Department of Macroeconomics of the Chinese Academy of Social Sciences.
The local government leverage ratio was 22% by June, said the report, up from 20.4% by the end of last year, while the debt burden of state-owned firms remained stable.
