De-leveraging Deciphered

Dec 03-2018   

Drastic de-leveraging through multi-channels has resulted in the drying up of liquidity in the market and hence the slowing down of the economy, said Professor Yao Yang, dean of NSD, in his speech at the annual summit by Cai Jing magazine on November 13th. While believing that de-leveraging is good in some ways, Professor Yao pointed out two critical issues: First, the de-leveraging has been too violent, tantamount to forcing an operation on a sick person without giving blood transfusion; And second, macro-economical measures have been implemented in lieu of real reforms, causing the debt ratio of both the enterprises and the local governments to stay too high. He proposed improving direct financing for private enterprises, encouraging mixed ownership reform of SOEs, and allowing local governments to issue more bonds now so to avoid another debt swap in one to two years' time.